The latest round in face value offerings, the $100 silver bison coin, once again raises the delicate issues of legal tender. Legal tender, the value struck on the coin, is one of three values that every coin has. The others are melt or bullion value – the worth of the metal it contains – and numismatic value, what the coin sells for on the open market. In most cases, the coin’s true value is whichever of these three values is the highest.
Mints like to use the term legal tender; it turns a medal or token into a real coin, it looks pretty impressive, and there is no doubt that it helps to sell coins. Most of these issues, at least in terms of the number of designs rather than number of coins actually struck, are non-circulating legal tender. That means that these are not coins expected to circulate. In fact, these coins can prove darn near impossible to spend in any way resembling circulating legal tender, a term which covers the 5-cent to $2 family.
Legal tender does not mean an item can be converted into another form of cash, but simply that it can be used to pay a debt. When a merchant or bank agrees to swap four 25-cent pieces for a dollar or vice versa, it is doing a favour. The redemption of coins is the prerogative of the federal government, if it so chooses. It also has limits. Sure we all hear about people offering to pay their tax bill or some fine in pocket change as a form of protest, but it doesn’t quite work that way.
In most cases the number of coins that constitute an offer of legal tender is close to the number in a roll. In the case of 5-cent coins the limit is $5. It is $10 for 10-cent and 25-cent coins, $25 for loonies, and $40 for coins higher than a dollar but not more than $10. For higher value coins, it is just one coin. But this applies to coins, not banknotes. There are even more wrinkles. If you offer to pay a bill, or make a purchase that exceeds those amounts, the other person is within their right to refuse, because you did not make an offer of legal tender. Another case is the $100 note, which is also legal tender. A merchant can refuse to accept high-value notes either because they do not keep sufficient change on hand or because they are suspect of counterfeits, or they can refuse any coin or banknote they find suspect.
In the case of changes in circulating coins, the Royal Canadian Mint is mandated to inform Canadians so that the coins will have acceptance. No such rule exists for non-circulating legal tender coins. All of that makes a $100 silver coin, which most Canadians have never even heard of, pretty hard to spend. Now I’m not picking on just the bison coin, or even the $20 for $20 issues. The same situation applies to bullion coins, and even the massive gold kilogram NCLT issues.
What makes this situation different is that the bullion and other collector coins usually have a melt value substantially higher than face value, often by several multiples. In those cases, it doesn’t matter how hard it is to spend a coin, because nobody in their right mind would sell gold or silver for less than its bullion value. However, the possibility does exist that a coin owner in the United States, unable to recover face value, may settle for bullion, particularly if they are in distress, or are disposing of an inheritance that cost them nothing to acquire.
The purchaser may see a chance to cash in on the difference, as happened some two decades ago when $5 Montreal Olympic coins were selling for less than face value. Now I have no sympathy for investors; they are used to the idea of balancing risk against return and make their own choices. I do however, wonder about the average person who buys one of these popular items, and then discovers that he or she will take a hit of more than 50 per cent if it comes time to sell. Hopefully, it won’t turn him or her against collecting.