Legal Tender

The legal foundation of the monetary system is the law of legal tender. The "Legal tender" concept is used in models to describe almost anything except for what it really means in actual laws. Such errors prevent an accurate evaluation of the importance of this legal status. This note explains in simple terms what "Legal tender" really means. Monetary theorists have recently started labeling the money they model as "legal tender." The meaning of this concept changes from paper to paper. In Lotz (2004), p. 967, it is the only money that sellers are allowed to accept. In Selgin (2003), p. 160, buyers can force sellers to accept it (but they can agree on another medium of payment).