Legal tender are the coins and currency issued by the United States Government. Legal tender includes both federal reserve notes and circulating notes of federal national and reserve banks. These coins and currency apply to all dues, taxes, public charges and debts. Legal tender does not include foreign silver or gold coins.
Section 5103 of Chapter 31 of the United States Code lists what counts as legal tender. Governments must define legal tender so that there is a common understanding about what is valid for meeting a financial obligation.
Though it may seem absurd, without a definition for legal tender, debtors could claim that they paid off a debt with any tender they wanted. Say, for example, that a Canadian business owed an American business $10,000. Without a definition for legal tender, the Canadian business could pay in Canadian dollars and claim that they satisfied the debt.