Legal tender and NIRP: Difference between pages

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imported>Doug Williamson
(Amend typo, replace full stop with comma.)
 
imported>Doug Williamson
m (Add "it" in "as low as it may". Change "It effects this" to "The central bank effects this" to avoid repeating "it". Amend "instructions" to "institutions".)
 
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Legal tender is that which, in a given jurisdiction, is accepted for the payment of taxes to the sovereign or government and can be used to settle debts in the community generally. A debtor cannot be successfully sued for non-payment if he can show that he has given legal tender to the value of the debt to the creditor or pays that sum into court in legal tender (if, for example, the offer of legal tender was refused).
Abbreviation for Negative interest rate policy.


In most jurisdictions, the means of private exchange does not have to be legal tender. In England it may be whatever form of payment is agreed between the parties (provided that is not contrary to public policy, for example, payment in slaves or by delivery of sexual services). Thus parties may agree to use only payment by cheque (US check), credit cards and so on, or to use legal tender notes but excluding high value notes. Such exclusions or conditions must be in the agreement between the parties. So, a shopkeeper displaying goods or representations of goods as offer to treat for sale would also display the conditions, including conditions as to payment. A customer saying they would buy something would be indicating their acceptance of the offer including the conditions unless they clearly put forward their proposed amendment to the conditions and that would be a new invitation to treat to the shopkeeper.
NIRP is a policy of a central bank to keep (short-term) interest rates in the economy as low as it may. The central bank effects this by reducing its own interest charges for borrowings by financial institutions or its payments of interest on deposits taken from those institutions not merely to a 0% nominal rate but to some actually negative nominal rate.
 
Additionally, there are usually statutory conditions applicable in the jurisdiction on an offer of payment qualifying as legal tender.
 
Take the United Kingdom as an example. First legal tender consists in offering the exact sum due - there is no right to demand change.
 
Bank of England currency notes are legal tender in England and Wales up to any amount, but no notes are legal tender in Scotland or Northern Ireland. Bank of England notes are, however, normally accepted throughout the UK.
 
UK coins of nominal £1 or more are legal tender throughout the UK up to any amount. 1p and 2p coins are legal tender for no more than 20p; 5p and 10p coins for no more than £5; 10, 20, 25 and 50p for no more than £10. Bullion coins, for example the £5 gold crown, while legal tender, is normally valued/bought and sold according to its gold content/collection value and not used as legal tender at nominal value.
 
In the US, United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues (Coinage Act of 1965). Again, parties may agree not to accept legal tender or to limit its use. And US eagle bullion coins are traded according to gold or silver or platinum content/collection value and not nominal value.


Note that the [[real interest rate]] in the economy may be negative or positive irrespective of the nominal rate being negative, it being the difference between rate of inflation in the economy and interest rates paid or received.


==See also==
==See also==


* [[Money]]
* [[ZIRP]]

Revision as of 17:18, 13 July 2014

Abbreviation for Negative interest rate policy.

NIRP is a policy of a central bank to keep (short-term) interest rates in the economy as low as it may. The central bank effects this by reducing its own interest charges for borrowings by financial institutions or its payments of interest on deposits taken from those institutions not merely to a 0% nominal rate but to some actually negative nominal rate.

Note that the real interest rate in the economy may be negative or positive irrespective of the nominal rate being negative, it being the difference between rate of inflation in the economy and interest rates paid or received.

See also