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Is it legal for a US city to create its own currency, and requires local businesses, or businesses and residents, to be willing to accept payments in that currency?

That is, nobody would be able to refuse USD, but they will also not be able to refuse SomeVilleCoins.

If the answer is "yes" - what about banking services in SomeVilleCoins?

Note: Let's ignore digital-only/crypto-currency.

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No

The first paragraph of Article 1 section 10 of the US constitution provides in relevant part:

No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts ...

Cites are created by and authorized by the states, and no city my do anything forbidden to a state. Creating "SomeVilleCoins" would violate the above provision, even if no one was required to accept it.

Note that a business is not required to accept even US currency for purchases under current law, although it must accept it in payment of existing debts. Congress could mandate acceptance of cash for purchases, but has not done so.

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  • 1. Oh, I was under the impression that cities are created by direct mandates from their residents (at least as far as legal fiction goes). 2. Wait, but - there have been local currency-ish arrangements, like Ithaca Hours - so aren't you saying those were illegal too?
    – einpoklum
    Jun 12, 2021 at 22:46
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    @einpoklum 1 No. US States have detailed laws specifying how cities, counties, towns and other local governments may be created and dissolved, what powers they may have, and how they are to be organized. Specific state permission is generally required for each new city or other local government. 2. That those were always optional, and not legal tender, may have made the difference. Or it may be that no one challenged such local "money" and they would have been held invalid if challenged. I was not aware of them before.
    – David Siegel
    Jun 13, 2021 at 2:27
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No, they can't require it to be accepted. Nonetheless many such currencies have been created. There are many community currencies operating now or in the past in the U.S. A list of just those in California.

  • Barter Bucks Concord, California
  • Bay Bucks San Francisco, California
  • Berkeley Barter Network Berkeley, California
  • Berkeley Bread Berkeley, California
  • Central Pound Clovis, California
  • Davis Dollars Davis, California
  • Escondido Dollars, Escondido, California
  • Fairbuck Fairfax, California (2011–2016)
  • Humboldt Hours Eureka, California, and Arcata,
  • Mendocino SEED Fort Bragg, California
  • North Fork Shares North Fork, California
  • San Luis Obispo Hours San Luis Obispo, California
  • Sand Dollars Bolinas, California
  • Santa Monica Hours Santa Monica, California
  • Sequoia Hours Garberville, California
  • Sonoma County Community Cash Santa Rosa, California
  • TradeMarket Nevada City, California,
  • Ukiah Hours Ukiah, California
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It is doubtful that a municipality would have the authority to compel individuals to accept SomeVilleCoins for any debt. The US government itself does not have the power to compel individuals to accept federal currency as payment. 31 USC 5103 says that "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", which means that they are "a legal offer of payment for debts when tendered to a creditor". But no Federal statute mandates that a private business, a person or an organization must accept currency or coins. "Legal tender" does not mean "the only legally usable form of money", it means "it is legal to tender an offer in terms of it".

State paper currency would not be allowed given Art. 1 §10 Cl. 1 of the US Constitution, which says that

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility

The HOUR currencies are "optional", and nobody is compelled to accept them as opposed to federal dollars.

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    I think that this answer has significantly misunderstood what "legal tender" means. It is true that no business is compelled to accept cash for purchases, although most do. But if one person owes a dept to another person (or firm) and offers legal tender, and the creditor does not accept that legal tender, then the debt is waived and cannot be collected. This was established when in the late 19th and early 20th century some creditors attempted to insist on payment of debts in gold, rather than in US bank notes. The legal tender law forbids such a demand.
    – David Siegel
    Jun 13, 2021 at 2:17
  • Also, while Congress has not acted to mandate that currency be accepted for purchases, nothing in the US Constitution forbids Congress from passing a law mandating this, Congress has simply not exercised that power.
    – David Siegel
    Jun 13, 2021 at 2:20

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