What is legal tender?

What is legal tender?

I have read quite a lot of comments - especially on Facebook recently regarding commemorative coins and whether or not you can spend them. It is clear that part of the problem is confusion over what the expression "legal tender" actually means. Many people have taken legal tender to mean that a coin can be spent like normal coinage.  A bit like saying that all of the £1 coins in your pocket are legal tender. Well they are, but they are more than that. If a coin is legal tender can you spend it anywhere? The simple answer is no, you can't.

So what does legal tender mean and why does it matter?

This is the definition taken directly from the Royal Mint's webpage:

Legal tender has a very narrow and technical meaning in the settlement of debts. It means that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender. It does not mean that any ordinary transaction has to take place in legal tender or only within the amount denominated by the legislation. Both parties are free to agree to accept any form of payment whether legal tender or otherwise according to their wishes. In order to comply with the very strict rules governing an actual legal tender it is necessary, for example, actually to offer the exact amount due because no change can be demanded.

In practice this means that although the silver UK coins we produce in denominations of £5, £20, £50 and £100 are approved as legal tender, they have been designed as limited edition collectables or gifts and will not be entering general circulation. As such, UK shops and banks will not accept them.

In other words, being "legal tender" is NOT the same as being in "general circulation". Only coins in general circulation have to be accepted by shops and banks and the Royal Mint make it explicitly clear that even they do not consider their commemorative coins to be "worth" their face value as actual cash.  So, if you are buying commemorative coins to put them away for a rainy day in the expectation that you can cash them in one day, you will be disappointed.

So what does settlement of debts involve if I can't spend it?

This is where things get even more confusing. According to the Royal Mint, a legal tender coin can be used to settle a debt. But if a commemorative coin isn't accepted as being in general circulation then how can this be achieved?  The answer is that apparently (and I haven't tried this out myself so can't vouch for it 100%), the coins can be paid into a court of law to settle a debt. Now, I would be interested to hear if anyone has ever attempted to do this as I can't imagine your average County Court cheerfully accepting a load of commemorative coins in payment of a fine, but that's apparently what it means as far as we can tell. (If you have any experience of trying to spend them in this way please let us know).

Is it worth buying commemorative coins as investments?

The long and the short answer seems to be that these commemorative coins, while potentially of extrinsic value to coin collectors (i.e. only if their rarity and desirability allow them to become of value - as opposed to the so called "value" that is minted on the coin or the value of the raw materials) are not worth very much at all in most cases. Is this misleading to buyers of commemorative coins? Well, you'd have to answer that for yourself, but we believe that the Royal Mint and other people who make and sell commemorative coins have deliberately used the term "legal tender" without properly and clearly explaining it over the years in order to encourage people to think that they were buying real genuine money that was worth at least the face value that they were often charged for it, when in effect, people have been spending £5 on a so called £5 coin that has little or no value at all.  That's pretty shabby in our opinion and until we hear otherwise from the Royal Mint and other manufacturers of these coins to the contrary, our view would be to encourage you to spend your money on real genuine collectible coins (whether in general circulation or not) that have a proper numismatic heritage - i.e. that were once in circulation but perhaps no longer are - as opposed to pretend coins that are not and never will be in general circulation.

As a final word, it is worth pointing out that the Royal Mint themselves have now started admitting as much on their online shop. For example, the following appears on their listing for a £20 coin to celebrate the Queen's 90th birthday. Guess how much it is selling for brand new? Yes, you guessed it, £20. So you might be forgiven that you are "locking away" your £20 to cash in at a later date - or perhaps if giving it as a gift, then that will be the case. However, when you read the terms and conditions on their page - this is what is stated (our bolding of text):

  • A reverse design featuring nine roses, one for each decade of The Queen’s life
  • Strictly limited to three per household
  • This is a commemorative coin.
  • Commemorative coins are generally treasured for their aesthetic and collectable value.
  • All commemorative and circulating coins made by The Royal Mint are legal tender. However, only circulating coins are designed to be spent.

So there you have it, directly from the Royal Mint. If you spend £20 on such a coin then it will only be worth anything if supply and demand (from collectors) make it so. You won't be able to spend it at the corner shop when you need to top up your electricity meter.

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