A while ago I admitted that I might have it wrong on legal tender. Reason being that provided people can choose to pay in alternative currencies, there is freedom of choice. However I've had chance to contemplate this and realise that I was right all along. The key part of legal tender laws isn't about what currencies consumers can choose to use, but what currencies businesses are obliged to accept. When we use a medium of exchange the likelihood that a trader will accept it is key, therefore the benefits of legal tender are obvious. Indeed Carl Menger no less said the following:
Thus the sanction of the state gives a particular good the attribute of being a universal substitute in exchange, and although the state is not responsible for the existence of the money-character of the good, it is responsible for a significant improvement of its money-character.
It's reasonable to expect that shopkeepers and businesses have a greater incentive to specify which currencies they believe will hold their value, and therefore the driving force behind currency competition comes from them. Although they are legally allowed to accept Euros, they are legally obliged to accept Pounds. This means that no matter what happens to the management of the currency, they cannot escape it. Giving businesses the right to refuse currency is the key to free banking. That's why legal tender laws are such an obstacle to sound money. That's why repealing them would trigger genuine competition. Hayek was spot on.