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Lawful Money

What is 'Lawful Money'

Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves. Fiat money includes legal tender such as paper money, checks, drafts and bank notes.

Also known as "specie", which means "in actual form."

Explaining 'Lawful Money'

Oddly enough, the dollar bills that we carry around in our wallets are not considered lawful money. The notation on the bottom of a U.S. dollar bill reads "Legal Tender for All Debts, Public and Private", and is issued by the U.S. Federal Reserve, not the U.S. Treasury. Legal tender can be exchanged for an equivalent amount of lawful money, but effects such as inflation can change the value of fiat money. Lawful money is said to be the most direct form of ownership, but for purposes of practicality it has little use in direct transactions between parties anymore.


Further Reading


Indian economic-policy reforms, bank mergers, and lawful proposals: The ex-ante and ex-post 'lookup'
www.sciencedirect.com [PDF]
… Harvard Economic Studies / Volume 132 The studies in this series are published by the Department of Economics of Harvard … The New York Money Market and the Finance of Trade, 1900-1913 CAE Goodhart Harvard University Press / Cambridge, Massachusetts 1969 …

Examining US approvals of Islamic financing products and the Islamic theory of lawful profitExamining US approvals of Islamic financing products and the Islamic theory of lawful profit
www.emerald.com [PDF]
… Harvard Economic Studies / Volume 132 The studies in this series are published by the Department of Economics of Harvard … The New York Money Market and the Finance of Trade, 1900-1913 CAE Goodhart Harvard University Press / Cambridge, Massachusetts 1969 …

Rules of Economic and Financial OperationsRules of Economic and Financial Operations
link.springer.com [PDF]
… Harvard Economic Studies / Volume 132 The studies in this series are published by the Department of Economics of Harvard … The New York Money Market and the Finance of Trade, 1900-1913 CAE Goodhart Harvard University Press / Cambridge, Massachusetts 1969 …

Fundamentals of Islamic Economics, Finance, and Banking: A Conceptual ReviewFundamentals of Islamic Economics, Finance, and Banking: A Conceptual Review
papers.ssrn.com [PDF]
… Harvard Economic Studies / Volume 132 The studies in this series are published by the Department of Economics of Harvard … The New York Money Market and the Finance of Trade, 1900-1913 CAE Goodhart Harvard University Press / Cambridge, Massachusetts 1969 …

Analysis of the concept of Islamic choice (Ikhtiyar) on opportunity cost and time value of money in Islamic economics and financeAnalysis of the concept of Islamic choice (Ikhtiyar) on opportunity cost and time value of money in Islamic economics and finance
journals.iium.edu.my [PDF]
… Harvard Economic Studies / Volume 132 The studies in this series are published by the Department of Economics of Harvard … The New York Money Market and the Finance of Trade, 1900-1913 CAE Goodhart Harvard University Press / Cambridge, Massachusetts 1969 …



Q&A About Lawful Money


How does legal tender differ from lawful money?

Legal tender has no intrinsic value or backing reserves, while lawful money has both intrinsic value (gold or silver) and backing reserves (reserves held in gold or silver).

What is money?

Money is any item or verifiable record that is generally accepted as a medium of exchange for goods and services and repayment of debts in a particular country or socio-economic context.

Is there only one type of money?

No, there are different types.

What are the main functions of money?

The main functions of money are distinguished as a medium of exchange, unit of account, store of value and sometimes, standard of deferred payment.

Where does legal tender come from?

Legal tender comes from the U.S. Federal Reserve System rather than the U.S. Treasury Department; it can be exchanged for an equivalent amount of lawful money but effects such as inflation can change its value over time.

What are some examples of lawful money?

Gold and silver coins, Treasury notes, and Treasury bonds are all examples of lawful money.

Are all forms of money commodity based?

Most contemporary forms are fiat based but commodity based forms have existed in the past.

What is the difference between lawful money and fiat money?

Lawful money is issued by the U.S. Treasury, while fiat money is issued by the Federal Reserve System.

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