Lawful Money

What is ‘Lawful Money’

Gold coins, silver coins, Treasury notes, and Treasury bonds are all examples of currency that is not issued by the Federal Reserve System but rather by the Treasury Department of the United States. Lawful money differs from fiat money, which is money that has been assigned value by the government despite the fact that it has no intrinsic worth of its own and is not backed by reserves. Fiat money encompasses legal currency such as paper money, cheques, drafts, and bank notes, as well as other forms of legal tender.

Explaining ‘Lawful Money’

Surprisingly, the dollar notes that we keep in our wallets are not regarded to be legal tender in most jurisdictions. ‘Legal Tender for All Debts, Public and Private,’ says the statement on the bottom of a United States dollar bill, which is issued by the United States Federal Reserve, not the United States Treasury. Although legal tender can be exchanged for an identical quantity of legal money, factors like as inflation can cause the value of fiat money to fluctuate significantly. Lawful money is considered to be the most direct form of ownership, but in practice, it is seldom used in direct transactions between parties anymore due to the inefficiency of the banking system.

‘Lawful Money’ FAQ

What is lawful money?

Legal money is a phrase used in the Federal Reserve Act, which is the legislation that grants authority to the Board of Governors of the Federal Reserve System to issue Federal Reserve notes.

Is the money which is to be treated as money under the law?

In the United States, legal money refers to cash issued by the Treasury Department, such as gold and silver coins, Treasury notes, and Treasury bonds. Fiat money, which is made up of paper money and checks, is not legal tender, but it is deemed to be legal tender in some jurisdictions.

Further Reading

    • Indian economic-policy reforms, bank mergers, and lawful proposals: The ex-ante and ex-post ‘lookup’ – [PDF]
    • Examining US approvals of Islamic financing products and the Islamic theory of lawful profit – [PDF]
    • Rules of Economic and Financial Operations – [PDF]
    • Fundamentals of Islamic Economics, Finance, and Banking: A Conceptual Review – [PDF]
    • Analysis of the concept of Islamic choice (Ikhtiyar) on opportunity cost and time value of money in Islamic economics and finance – [PDF]