I am arguing with someone that federal reserve money is de facto government money because of legal tender laws compelling its acceptance. He uses the fact that we use credit cards and checks that are not legal tender to prove that we are free to use other types of money, and the laws impact is minimal. I looked it up and the legal tender law that covers fed money is the Coinage Act of 1965, a time when use of credit cards are not widely used. I believe this law is what holds the system together, but I need to present an answer that proves it.
How do I prove that despite wide use of checks and cards, we are not really free to use anything but money that originates from the Fed and government is complicit?
I would say that the legal tender status of FRNs is relatively unimportant. Its duty-free status is really what’s important. Under current IRS regs, if you directly barter goods (say, a box of apples in exchange for a recliner), the tax is assessed on both items at their “market value” as income. This means that if you “bartered” gold coins for something else, there would be tax consequences on both parties to the transaction. But if you exchange FRNs for a good or service, there is only a tax consequence to the recipient of the FRNs. FRNs are duty-free in this sense. If you hand $1000 to Best Buy in exchange for a TV, the Federal tax liability falls on Best Buy. But if you hand a $1000 gold coin to Best Buy in exchange for a TV, you owe capital gains on the coin if its value went “up” in terms of FRNs from the time you bought it, and you owe barter tax on the value of the TV. Similarly, when Best Buy exchanges away the gold coin, they also will have to pay capital gains tax if its nominal value, measured in FRNs, increased.