The Coinage Act of 1965 states (in part):
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....
—31 U.S.C. § 5103
All other means of payment, such as credit and debit cards, checks, and other instruments, may be turned down as payment for debts. Likewise, certain types of coinage can be limited for some debts.
This is important, because these virtual instruments have vulnerabilities that paper money does not. For example, during the Great Depression, some “bank holidays” lasted from 3 to 300 days, during which their issued checks were suspended. And within the last decade congress has changed the law so that banks, on their own initiative, may declare up to a two week holiday.
Credit and debit card companies cannot underwrite the billions of dollars in their cardholders’ debts, so issue bonds, regarded as the next safest to US T bonds, for this purpose. If a single bond issue fails, however, they go into panic mode. This happened a year ago, and they were forced to cancel hundreds of thousands of inactive cards, to lessen their exposure.
It is estimated that if five such bond issues failed in a row, they would be out of business.
All that really has to happen for a currency split to take place, however, is for retailers to demand cash. And many retailers have created contingency plans for just that.
Thus virtual money could hyperinflate, but paper money and coins would assume their face value x 20 at a minimum. Instant massive deflation.
Thank you. I did not know about the Coinage Act.
Nonetheless. There will be no differentiation made between checkbook money and actual dollar bills when the purchasing power of the dollar starts to drop. It is not a legal issue; it's psychological.
When your money consists of nothing more than the government's say-so, the faith in money is psychological.