NCLT conundrum has a solution

I’m going to be honest, sometimes I shudder when I hear the words legal tender.

The reason is because there seems to be a massive disconnect between what legal tender is, and what it actually means. It is subject of an article in this issue.

To most members of the public it means that they can spend it anytime they want, or convert a legal tender coin into paper money. To the Royal Canadian Mint (RCM), it means that the coin has legal tender status under Canadian law, but it is not expected to circulate. To banks and businesses, it is at best a weird coin which has no place in the circulating coin distribution program.

It is complicated by the fact that non-circulating legal tender (NCLT) coins are sold by the Mint, so people expect the Mint to stand behind them, in fact to redeem them for a cheque if submitted. That’s not what legal tender means in Canada.

Nobody at the Mint gets this. The reason is simply that the Mint makes coins, but they are the responsibility of the government, embodied as the Minister of Finance. That means that they are the minister’s problem, and the feds are not in the business of converting coins from one format to another.

Even worse, people think that legal tender means that they can drop NCLT coins off at their local bank. Simply put, banks don’t want to touch them because no mechanism exists to turn them back in for credit or regular coins.

I suspect this is a legacy of our dark numismatic past, to the days when government issued notes could be redeemed for gold on demand. Those days ended a century ago, but our attitudes remain. We expect the government to stand behind its money, and we still think of the RCM, not as a Crown corporation, but as a government department.

The expectations of the public who buys the coins are fair, as is the approach of the RCM. This is a case where everybody is right, and everybody is wrong.

My problem is that I sort of end up in the middle. I’m sort of expected to justify the RCM’s stand, which while I think it is legally right, is morally wrong.

This issue first came to the forefront in 1990, when someone tried to cash in a bunch of Montreal Olympic commemoratives, since face value was higher than melt. A year later a system was set up with a Canadian bank, but that procedure quietly died a few years later. Today the only redemption in place is from the RCM, which will accept NCLT coins at face value, if a purchase is made.

The problem is returning now because of the success of the face value programs, notably the $20 for $20.

People who acquire these coins for face value have a perception that there is zero risk, and that they can spend them for this amount any time they want.

However, they soon find out that NCLT is virtually impossible to spend. Businesses have the right to refuse to accept the coins they are unsure of, and that covers almost all NCLT issues. Banks also try to reject them, since legal tender implies the existence of a debt, not of a deposit. To make it even tougher, higher value coins are generally only legal tender in units of one coin.

There is a solution. The RCM, which chairs the group which looks after coin distribution, needs to set up a procedure with the Bank of Canada that allows banks to return NCLT to coin distribution depots in return for credit. It seems easy enough, let’s hope it happens.

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