#5289 - Character Of Money - Personal Property Law

Character of Money

Money is a social fact

Money is a social fact created by social usage in a particular country. The law cannot create money but it can facilitate the use of a certain kind of asset as money e.g. by conferring legal tender status on it or by applying a favourable system of property rights to it.

Not all money is legal tender.

When a debt is owed, it is not deemed to be paid until the creditor accepts the tender of the debtor. Legal tender gives the debtor a means to compel the creditor to accept the tender. Is the creditor fails to accept legal tender, and then tries to sue, he will be unable to obtain any alternative and will have to pay the other side’s costs.

All Bank of England notes are legal tender (Currency and Banking Notes Act s.1 (2))

Cupro nickel coins more that 10 pence are legal tender up to 10. Cupro nickel coins not more than 10 pence are legal tender up to 5. Copper coins are legal tender up to 20p.

Once legal tender has been offered then the creditor is obliged to accept it. However the debtor must then place the tender separately so he is not earning interest and benefitting from the creditor’s assets. (Edmonson v. Copland)

Mann says that legal tender status is vital to determining what is money.

Fox disagrees, he says legal tender status merely helps to determine primary sources of money and then other sources of money can be defined from that.

Does legal tender status matter today?

• Legal tender limits are practically unimportant in almost all private commercial transactions BUT

• Legal tender defines the primary form of money, to which all other forms of money are reducible.

• All secondary money forms involve obligations denominated in monetary units of account which can ultimately be discharged by payment of legal tender.

• The exercise of sovereign power to issue money with legal tender status is one sign that a monetary system is legally independent.

Money defined by its functions

Medium of exchange - a means of facilitating exchange transactions without needing to resort to the barter of commodities

- derives its value from the usability, the fact that it can be exchanged for something else

- it is associated with defined quantities of value, which are determined by the community in which it is circulating. As such one can only define money in terms of what the community will accept.

Unit of account - a universal denominator of value

- money is the proper medium and measure of exchangeable things (Case of Mixt Monies)

- a means of economic measurement, unique to each constitutionally independent money system.

- modern token money systems have a circular definition: 10 is 10 because it is 10. The pound defines itself as a unit of value. The pound is defined by the circulating media in a particular country (the UK or Cyprus)

- legal tender rules will explain what the definitive forms of money are in a legal system

Store of value - a store of value that is capable of being passed to another in return for valuable economic commodities

- does not respond to market fluctuations and so the purchasing power of each unit varies as a unit of value can only be stated at a constant rate

Different types of money

There are many different assets which can serve as money, these have different characteristics and bestow rights which can be enforced in different ways.

Coins as choses in possession - a holder can bring actions in trespass or conversion against another

- not a primary form of money as there is a limit on legal tender status

Banknotes - a primary form of money, banknotes have unlimited legal tender status

- Goode says these are documentary intangibles, a promissory note embodying a chose of action

- notes can be transferred and so, as long as the banker’s credit is good,there will never be any need to redeem the note. This allows the note to become money itself provided there is sufficient solvency and confidence in the bank.

- now that notes have become money in their own right it is possible to issue more notes than deposits held so long as both the solvency of the bank and confidence in the bank are maintained

- the Bank of England note is not convertible into anything other than another note, this irreducibility is another trait of a primary form of money

- banknotes are now purely token and do not represent actual deposits

Monetary Authority Reserve Funds - reserves held to balance liabilities when printing money

- these are just debts owed by the government

- people do not have a proprietary interest in the reserve, only a right in...