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The precise reason for a money order limit typically depends on the business or agency responsible for issuing the money order. In many places, including the US, there is not a strict legal reason for a limitation. If a business wishes to issue money orders of hundreds of thousands of dollars, they likely could do so. This is not typically done, however, since a money order limit is often set to try to prevent fraudulent money order claims in very high amounts.
Fraud is one of the biggest reasons a business will usually set a money order limit. Over the past few decades, forgery of money orders and changing names on money orders has become an increasingly pervasive issue. Since a money order is paid in cash at the time of purchase, there is little a person can do to deal with fraudulent claiming of a money order. To reduce the damage done to businesses by fraudulent money orders, a money order limit is usually set.
Since the money order limit is set by the business or agency that issues money orders, the limit is likely to vary by location. This can be a regional standard of value, or a particular business may set a limit that is observed at various locations for that business. The lowest limitation for a money order will typically be $100 US Dollars (USD), since anything below that is simply impractical. Many places will set a money order limit to $500 USD, which is still fairly high but not high enough to cause serious problems.
The United States Postal Service (USPS), one of the leading issuers of money orders, has set a money order limit of $1,000 USD for domestic money orders, as of 2010. For international money orders, the limit is set to $700 USD. Of course, these limits are only set to individual money orders and multiple money orders can be purchased at once, though a government-issued photo ID is required for purchasing over $3,000 USD in money orders in a single day.
One thing to consider, with regard to how a money order limit is set, is what businesses are willing to cash money orders. Just because a business will issue a money order, does not necessarily mean it will also cash a money order or not limit how many money orders it will cash. For cashing a money order, it is often easiest to use a USPS location, especially if the money order was issued by the Postal Service. Many banks will not cash a money order, due to issues with fraud and fake money orders being processed by banks in the past.