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Message:: [QUOTE="Jamericon, post: 1259774, member: 18294"]Legal tender has everything to do with the government—no law mandated any private business to accept government-issued money. That being said, most business accepted whatever currency you offered, without question. Federal Reserve notes were created under the Federal Reserve Act of 1913. Until then, the government had one kind of currency—a non-elastic currency, one whose volume in circulation cannot easily be expanded or contracted. Silver certificates and gold certificates were backed by reserves of gold coins and silver coins; the volume of United States notes was fixed by an 1875 law; and national bank notes were backed by Treasury bonds purchased by the banks. Financial panics, such as the Panic of 1907, became worse because the Treasury had no means to quickly inject currency into the economy. The 1913 Act fixed that. Federal Reserve notes were backed by gold and short-term paper, such as commercial debt, put up as collateral by the member banks. When a Federal Reserve bank offered this collateral, they were issued notes; when the notes were longer needed, they withdrew them and dispursed the collateral. The act was structured so each transaction was essentially automatic, thus (in theory) preventing devastating contractions of the money supply. A direct consequence of the Federal Reserve Act was the end of national bank notes, although that occurred two decades after the act became law.[/QUOTE]