Legal-tender coins can’t always be spent

One of the most confusing aspects of numismatics in Canada is the term legal tender.

We see it used a lot, particularly with non-circulating coins issued for the collector market, but it is also used on bullion coins, and even comes to play when someone tries to spend an old nickel dollar.

Most people, it seems, think that legal tender means money. Well the word tender is key, since legal tender means it can be used to pay a debt. Simple enough until you end up with an unusual coin, such as an old Montreal Olympics commemorative. Here is where we discover what legal tender does not mean. It does not mean that a bank has to accept it in deposit. It does not mean that a bank has to swap a coin for an equivalent amount of cash in another form. It does not mean that a merchant has to accept it at the till. And, it does not mean the Mint will swap it out for an equivalent value in paper money.

To make matters worse, there is a bit of a loophole that means that even if you are offering a legal tender of legitimate money, a merchant can refuse to accept it if they are in any way suspicious or unsure.

That is how businesses are able to legally refuse to accept $50 or $100 notes, they simply have to say that the large number of counterfeits confuse them. It also means you can’t use a pocketful of $20 for $20 coins to fill your tank at the local gas station.
Here is where things get even more confusing: a large number of coins are only legal tender up to a certain amount, in most cases less what it takes to make a roll. For example, a roll of 50 pennies is not considered legal tender since the ‘legal tender’ limit is 40 pennies. A similar rule applies to other coins, depending on denomination. In high value non-circulating coins, such as $5 and up, the limit is one coin, except for Montreal Olympics commemoratives, where legal tender are units of two coins as they are governed by a different act.

So if you owe a parking ticket of say $50 and you decide to pay it all in nickels in a wheelbarrow, the local authority can refuse to accept payment. Since 1,000 five-cent pieces are not an offering of legal tender.
Are you confused yet?

Hang on, because it gets even more confusing. Back in the 1990s, silver was worth a lot more than it is now, and the melt value of Montreal $5 and $10 silver coins was about 80 per cent of face. Some enterprising individual figured he could buy them for melt in the U.S., and then cash them here in Canada and make a tidy sum.

Sure enough, he found himself in Ottawa with a briefcase of these coins, figuring it was a simple matter to cash them in for a few thousand dollars profit.

His first stop was a branch of the Royal Bank of Canada. I guess he figured from the name that it was a government-owned bank. The bank refused and explained that the central bank was the Bank of Canada.

Off he went, only to be told that they didn’t do such things, and in any case coins were struck by the Royal Canadian Mint. Banks don’t like handling these unusual coins, because they don’t fit in with the normal coin handling system.

By now you know where he went next, only to be told that the Mint only made Canadian coins on contract and once they left the door they were the responsibility of the minister of finance.

The individual didn’t get to see the minister personally, but at the end of the day the entrepreneur went home, still owning a briefcase of silver.

It took a few months, but a compromise was reached whereby the RCM agreed to accept the coins if they were used to purchase RCM product.

The Royal Bank of Canada also agreed to do so for an indefinite time. That sort of petered out when the Bank got out of numismatics, with the exception of certain issues.

Today, if you have non-circulating legal tender you have a few choices: hope your local bank values your business well enough to take them; use them to buy product at an RCM boutique; or, try to pass them off on local businesses in the course of your normal business.

As for me, I just chuck them in a drawer along with my other orphan coins, coins such as the demonetized English sixpences which still show up from time to time.

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