A couple of weeks ago we wrote an article about how businesses were within their rights to refuse to accept worn, torn and old USD notes. Most people understood why we were talking about while a few ranted and raved at us for making such an argument. Quite a number of people thought we were dumb idiots who don’t know what they are talking about. Anyway here is a summary of our arguements:

Old, torn and worn notes are generally regarded as legal tender by the US government
However, such notes are not meant to continue circulating
Instead, they are supposed to be sent back to the Bureau of Engraving and Printing which will then replace these
This involves shipping or mailing costs which have to be incurred by whoever is sending back the notes
When it comes to old notes, there is a very real risk that such a note could be counterfeit
In fact the older the note, the easier it is to counterfeit
Whoever accepts a counterfeit notes stands to bear the loss of such a note
Again old notes are not meant for circulation, they should be sent back to the Bureau of Engraving and Printing
Like with soiled, torn and mutilated notes, the cost of doing so is incurred by whoever is sending back the note
Only once the note has been received by the Bureau will you know whether it’s counterfeit or real

The RBZ wants businesses to treat torn and old notes as legal tender

PUBLIC NOTICE

OLD AND WORN UNITED STATES DOLLAR NOTES
It has come to the attention of the Reserve Bank of Zimbabwe (the Bank) that some persons are refusing to accept old and worn United States dollar (U.S. dollar) notes alleging that they are old and mutilated and therefore of no value.
For the benefit of the transacting public and as already advised by the USA Embassy in Zimbabwe in its Tweet on 16 November 2020, the Bank wishes to inform and restate the position of the United States Government that U.S dollar notes do not expire no matter their age, and that the U.S. Government does not even consider old, worn notes to be mutilated as long as more than half of the note is intact, and the value of the note is clear.
John P. Mangudya
Governor
21 December 2020
A notice issued by the Central Bank yesterday

The RBZ and US Embassy are both right and wrong

What the Reserve Bank of Zimbabwe says in their statement is entirely correct. The United States considers all issued notes to be valid legal tender. These notes do not expire and a note is only considered mutilated if it’s value is no longer visible or more than half the note is gone. None of these facts are in dispute. It is also a fact that torn, mutilated and soiled notes do have a value. They are not of no value as some people are claiming.

While right on these points the RBZ to its credit does not seem to be claiming that these notes should be taken at face value. There is no way a torn or old US$100 note should have the same value as a clean and crisp new note issued during this millennia. As already noted in our opening arguments, the general policy of the United States government is that such notes ought to be sent back to the BEP which is in Washington D.C.. The BEP is a good 12 800 km away and sending back notes is going to cost a pretty penny you better believe that.

Now customers in general don’t want torn notes either. That’s the hypocrisy of it all. Those who want to dump torn notes on banks and businesses don’t want to accept those same notes themselves. They are essentially looking to shift the burden of dealing with such notes on businesses. Yet at the same time they also want those notes to be accepted at face value! That makes zero economic sense.

Someone has to pay for the cost of shipping

There are lots of banks that do accept these notes but they do so at a discount. This discount is around 7% of the face value. So US$100 note gets you US$93. Those banks are even willing to give you this money as cash. Now that makes economic sense. The banks can then use that 7% difference to pay for the cost of shipping the worn, torn and mutilated notes back to the United States were they can be exchanged. Now that is fair. What is not fair is to ask businesses and banks to foot the bill of the process.

If the RBZ wants banks and businesses to accept worn and torn notes at face value they have to foot that shipping bill. Banks should be able to just give the money to the RBZ, which can then ship these notes back to the United States. There should also be some sort of insurance that compensates businesses that incurr losses as a result of taking old notes that later turn out to be counterfeit.

The Reserve Bank of Zimbabwe likes to throw its authority around but authority ought to be always paired with responsibility. Something Zimbabwean authorities conveniently seem to forget. Making orders without assuming that responsibility will not work. Remember when the bank said bond coins were legal tender? Did that work?