This is a thing we see frequently on social media. People complaining about being refused service by such and such a shop because they wanted to pay using old or torn notes. Even in real life, I have seen it happen and it has happened to me too. A person about to make a purchase is turned away because of the state of the bill they are about to use to pay. It even happens when one wants to use ZWL (aka bond) notes.

Still legal tender

The argument put forth by those who want businesses to accept their bill despite its state is that it’s legal tender. Generally this means that if you owe someone money, you can extinguish this debt by offering the requisite legal tender to the person whom you owe. Some people seem to believe this means that when they show up with their torn and old notes the owner of the shop is obligated to accept this money as the bills they want to use to make the payment are legal tender.

In fact laws have been passed in Zimbabwe to make the US dollar legal tender. This means it is acceptable as payment in settlement of debts. The United States embassy in Zimbabwe has also waded into the argument by asserting the fact that even old USD notes are legal tender:

U.S. government policy is that all designs of U.S. Federal Reserve notes remain legal tender, or legally valid for payments, regardless of when they were issued. This policy includes all denominations of Federal Reserve notes from 1914 to present. Link:

The US Embassy in Harare’s statement on the issue

When it comes to bond notes/ZWL notes, we all know they are legal tender because they are introduced as such so there is no confusion about that at all. So to clarify old and worn out notes are still legal tender. There is no argument from us on that front. But wait there is something else you need to know…

Contract law makes it legal to refuse old and worn out notes

What that short message from the US Embassy in Harare did not mention is that in the United States and indeed in Zimbabwe contract law allows the parties to that contract to specify the settlement currency and mode. A contract is an agreement between two or more parties that is intended to be enforceable by the law. Examples of contracts include contracts of employment, sales contracts and rental contracts. For example, a contract might specify that your salary will be paid out in ZWL cash or in USD cash. In this case, you are entitled to receive your salary in cash, not in any other legal tender. Your employer cannot just transfer RTGS equivalent into your account because the law says RTGS is legal tender. That would be in violation of that contract and you will be entitled to what you are owed as described in that contract.

While most contracts are very explicit with regards to their terms this need not be the case. Sometimes the terms of a contract can be implied or partially implied based upon common practice. In fact, some contracts are so routinely executed to the extent that some people do not even know they are entering into a contract agreement. Case in point are contracts of sale. If you say, enter a supermarket and start loading stuff into your cart, you are tacitly entering into a contract of sale which is then executed when you reach the point of sale and offer up acceptable payment.

The keywords here are acceptable payment. Not legal tender. Even if you, say have RTGS in your account, which is legal tender, it doesn’t mean it will be accepted. It could be because the shop lacks the technical means to accept your payment because, for example, their Point of Sale is down. In which case at that instance, RTGS is not acceptable payment. Sometimes a shop will also make a controversial but valid policy that they will not accept torn USD or ZWL notes. In which case your payment will not be acceptable to them. They are within their rights to do so, provided there is no other valid law that prohibits them from doing so. Usually, there isn’t and in the case of Zimbabwe or the United States, there doesn’t seem to be a law saying businesses ought to accept soiled and or torn notes.

To rephrase the arguments we have put forward here are some things to bear in mind when it comes to torn and old notes:

  • Old and torn notes are still legal tender
  • Businesses are allowed under contract law to restrict forms of payment that they can accept
  • A contract of sale is still a contract and some shops implicitly/explicitly restrict payments they accept. This can happen at the point of sale when you are about to tender payment. Businesses are within their rights to do so as there is no rule obligating them to accept torn or old notes
  • In fact the US government explicitly recognises this right even though the Zimbabwean government seems to state otherwise there doesn’t seem to be laws prohibiting this practice. In fact Zimbabwean government agencies and entities often refuse these notes and sometimes explicitly demand USD only too even though ZWL is legal tender.

Just because it’s legal tender doesn’t mean you can foist it on people who don’t want it.

For more on this please see the US Treasury’s guidance on the issue. They support our viewpoints on the issue.

You cannot force businesses to enter into a contract into you

Although some people seem to believe otherwise, the underlying principle when it comes to contracts is that you cannot force someone to get into a contract with you. Such a contract would be null and void (void ab initio). All parties to a contract have to agree of their of free will to enter into such a contract. At law we say there has to be consensus ad idem– a meeting of the minds. In other words, those who are party to the contract have to be in complete agreement with one another regarding the terms of the contract.

You cannot just walk into a shop and force someone to sell their product to you in return for payment using “legal tender.” The business/shop has to agree to the terms too. For that to happen they have to find your payment terms acceptable. This usually means you present the business owner with payment means that is acceptable to the shop owner. Shop owners have rights too you know.

Now, the populist government in Zimbabwe has always sought to limit that right. During the 2008 economic meltdown the government would come up with bizarre exchange rates and force businesses to use those even when it made no economic sense given the fact that these businesses were not getting their foreign currency at the official rate. Last year shops were banned from accepting USD even though they wanted to.

The thing is no good has ever come from such unwanted incursions into contract law territory. In 2008 this led to a total meltdown as shops simply shut their doors or were raided out of business as shoppers would occasionally follow, price control officials into shops where they would proceed to loot the under-priced goods in exchange for worthless payments.

To be clear contracts are often regulated to make sure they adhere to the law and principles of the jurisdiction in which they are made. The United States is very liberal when it comes to contracts opting to pass as little legislation as possible while Zimbabwe is a bit more restrictive. However, in both Zimbabwe and the United States, a contract entered into for the purposes of defeating the law is void ab initio. This means that if at some point the Zimbabwean government makes it a law that businesses and shops ought to accept torn and old USD notes, they would have to accept them.

It doesn’t make business sense to accept old and torn notes

Most shops do not accept old notes because it makes little business sense to do so. The problem with torn and soiled notes is that no one wants them. People have a habit of dumping these notes on businesses because they cannot use them anywhere else. No one wants them including the people who usually complain that this and that business is not accepting their torn and soiled notes. Even US shops sometimes do not accept damaged notes.

In general the following is common practice in the US when it comes to damaged/soiled notes:

  • Damaged U.S. currency—paper bills—that have merely been damaged can typically be replaced at a bank, while bills that have been torn must be mailed to the U.S. Bureau of Engraving and Printing for replacement.
  • To be considered damaged but not mutilated, at least one-half of the damaged bill must be clearly identifiable. Bills that are dirty, defaced, or torn can typically be replaced at a bank.
  • Bills that have deteriorated from being buried in soil or have been damaged by fire, flooding, chemicals, explosions, animals, or insects are more likely to be considered mutilated.
  • The Bureau of Engraving and Printing (BEP) does not charge for inspecting or replacing mutilated currency; however, the BEP must be able to identify mutilated bills as being valid U.S. currency. Usually, this means there has to be a visible serial number and the bill presents as valid US currency.

These notes are not meant to be circulated. They have to be taken back to the US for all these things to happen. That costs money. Who is going to pay for your dirty soiled notes to be taken back to the BEP? Imagine yourself selling burgers and receiving a $1 bill in such state. Would your business survive taking this torn bill if you have to ship this bill to the United States at a cost that will no doubt exceed the face value of the bill? You would be the world’s biggest idiot to accept such a note.

Even Zimbabwean banks do not like these bills either. Those that accept such bills only do so at a discount that makes business sense. Zimbabwean banks have to charge you, the depositor, a fee that will allow them to ship these worn-out notes to the BEP or to a US bank that will take them. The US Embassy in Harare certainly does not offer this service so they cannot be advocating for people to accept these bills at face value when those accepting them will eventually have the burden to ship them back to the BEP at their own expense.

Only an idiot would take torn, soiled or mutilated notes at face value whilst they are in Zimbabwe.

Accepting old USD notes is stupid

Old USD notes also present problems of their own. With each passing year counterfeiting technology is improving. The United States currency is the most counterfeited currency in the world owing to it being an almost universally accepted settlement currency. It’s no wonder therefore that the United States is always updating the security features of its currency. Every time this happens a new series of bills is produced.

The trouble with accepting very old bills is that you never really can tell whether the bill is real or counterfeit. If the bill is fake then it’s your loss as a business. What most business do is try to strike a balance. On one hand they don’t want to take bills that are too old and run the risk of it being a fake bill but they don’t want to be too restrictive in terms of the bills they are accept to the extent that they will end up losing business.

In most countries including the United States, this is not an issue. The person with the old bill can always go to the bank and either deposit or exchange the bill. The customer can then pay using either the bill or via ACH or swipe. The problem outside the U.S. is that just like with a soiled note, this bill will have to be returned to the BEP. Again this comes with a price tag. There is also the problem that the bill is hard to authenticate. The only entity that can verify the bill with certainty is the BEP. Imagine accepting a bill in our little shop, shipping it back to the US and later learning it’s fake. How is that fair or sensible?

As a general rule of thumb you will struggle to use USD notes made in the last century. A lot of shops both within and outside the United States will not accept such notes. Contrary to popular belief, this is not an entirely Zimbabwean problem. Bureau De Changes in countries such as South Africa, Mozambique, Australia and even Pakistan might turn you away. They don’t want the burden of having to ship these notes back to the US.

Do you know that $1 000 and $10 000 USD notes actually exist. Imagine walking into a Zimbabwean shop with one of these. You will probably receive a thorough beating from the shop staff for trying to defraud them.

Salvation in dealers and banks for a fee

Old notes can always be exchanged for new ones. Lots of dealers have sprung up in this area. They buy torn or mutilated notes so long as the serial numbers are visible. In return they demand a certain fee which can be as steep as 50%. Banks such as Stanbic and Standard Chartered also charge a fee when you deposit such notes or exchange them for new ones. They do this so they can cover repatriation costs involved in taking your notes back to the US.

Most businesses just want to sell their products in peace, so stop trying to burden them with your old, damaged, mutilated and soiled notes. The problem with soiled, torn, mutilated notes is that you cannot even determine if they are the real thing sometimes. That’s in addition to the cost of sending them back to the BEP. Businesses and sellers are within their rights to refuse them.