Legal tender subtleties leave collectors and dealers scratching their heads

Nobody can argue about the success of the Royal Canadian Mint’s (RCM) face value program when it comes to selling coins, the problem seems to be when owners want their money back.

When the first $20 for $20 coin came out in 2011, members of the public jumped at the chance to acquire a silver coin for face value. The issue sold out in just 29 days, despite limitations on how many could be sold to a single address. The coins, which contain slightly more than one-quarter troy ounce of silver, have an approximate bullion value of $7 at press time.

That success led to a program that continues, and has now been expanded to $50 for $50 and even $100 for $100 coins, all proving popular sellers. In recent years, mintages have been lowered from the 2011 high of 250,000 to 200,000 in the most recent issue, but the coins always sell out in the year of issue.

For the RCM the plan meets it goals. In its annual report the Mint described the face value program as a “customer acquisition” initiative, but the coins do generate a profit.

However the unusual tactic of selling the coins for face value, rather than at a premium as is usually the case with collector coins, creates a perception that the issues are similar to circulating coins and can be converted, or redeemed.

Dealer Todd Sandham, of Colonial Acres Coins in Kitchener, Ont., said a lot of his customers have questions.

“If the time comes where the customer no longer wants the coin, and is in a position to sell these items, what guarantee, and more important, what procedures does the RCM have in place for the general public to follow to sell these unwanted coins back for their respective face values?” he asked.

He said among the questions customers ask is how to get their coins to the Mint, who pays the shipping, how will they be paid, and what guarantee is there that the coins will be honoured by the Mint down the road?

“I know these are considered non-circulating legal tender (NCLT),” he said, “so how does one go about getting legal tender value for their coins through the RCM?”

At the time the $20 for $20 program was announced, the RCM stated it would accept the coins at face value for the purchase of numismatic items at Mint boutiques across Canada. At the recent Royal Canadian Numismatic Association convention, the Mint accepted $20 for $20 coins at face value at their booth on the bourse floor, for the purchase of NCLT products.

The coins are legal tender in Canada, and struck under the authority of the Currency Act, which regulates Canadian money. The act does not define the specifications of circulating and non-circulating legal tender coins, which is covered under the Mint Act.

The Mint Act contains a schedule, which can be amended by the Governor in Council, of coin specifications. In the case of circulating coins composition and weight are specified. In the case of NCLT coins, the act specifies only denominations, leaving the composition, weight, and purity for the RCM to decide.

In the case of a coin with a denomination greater than $10, that act states that “payment may consist of not more than one coin.”

The Mint Act does not offer a vehicle, or place a requirement on the RCM to redeem coins.

The Currency Act, however, specifies that it is not the Mint, but the government of Canada that is responsible for redeeming coins.

While the act gives the Governor in Council, a term usually meaning the cabinet, the authority to make regulation for the redemption of coins, it also states that “payment for the redemption of coins, including related costs, shall be made out of the Consolidated Revenue Fund on the authorization of the Minister.”

That is the same fund that receives money received from the issue of coins. However, the act does not require such a process be in place for all coins.

The last lime such a process was set in place was when the penny was withdrawn from circulation. At that time the RCM was given the job of recalling the coins through the coin distribution system and destroying them. The government picked up the cost of redeeming the one-cent coins, and other related costs.

Even the phrase legal tender is complicated, since it implies a payment of money, not storage of wealth.

The Currency Act uses the phrase “a tender of payment” along with “payable by one person to another.”

A further complication is that merchants and banks have the legal right to refuse to accept money which they are suspicious or unsure of, even though it may be genuine and legal tender.

Since the Mint’s family of NCLT coins, including the face value series, have no place in the coin distribution system, financial institutions often refuse to recognize or redeem them, sometimes accepting them only for good customers.

Sandham further explained that since customers won’t sell the coin for less than face value, and don’t want to pay more, dealers are caught in the middle.

“We often turn down offers to buy these,” he said.

Other members of the numismatic community have different thoughts.

At the recent convention of the Royal Canadian Numismatic Association, a group of collectors and dealers speculated that, without sufficient disclosure about the details of legal tender, and limitations on cashing NCLT coins, there may be room for a class-action law suit, representing purchasers of Mint product unable to get their money back.

Canadian Coin News reached out to the Royal Canadian Mint, but had not received a reply by press time.

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