Countries where Bitcoin (BTC) is legal.
- What does using Bitcoin as legal tender entail?
Citizens may use Bitcoin as a means of payment if BTC is considered as legal money in their individual country, unless they can establish that they do not have access to the requisite technology.
A country’s central banks and regulators typically determine what is legal currency in their economy. This implies that any value they judge appropriate to be legal currency may be used to pay for items in stores. In the United States, for example, $10 bills and $.50 coins are legal tender.
Making Bitcoin (BTC) legal money implies that if someone wants to buy a cup of coffee, they may do so using BTC. Without a central bank declaring Bitcoin legal cash, shops would bear the risk of taking BTC for products offered. If the central bank declares Bitcoin to be legal money, it becomes an official means of value exchange in the economy.
The growth of Bitcoin and a few other decentralized cryptocurrencies has also prompted a number of central banks to investigate digital currencies as a more solid alternative to fiat currencies. As a consequence, numerous nations, including China, the United Kingdom, the United States, and India, are developing central bank digital currencies (CBDC).
The motivation for adopting digital currencies in these nations is to improve the traceability and control of every unit of money in the economy. This traceability will assist them in more correctly computing taxes and identifying money launderers, but more crucially, in detecting any buildup of wealth and devising strategies to keep it inside their economies.
- What variables often drive a country’s acceptance of Bitcoin as legal tender?
Typically, a nation seeks to control macroeconomic conditions via the introduction of a currency as legal tender. To make Bitcoin legal tender, these criteria must be combined with visionary leadership.
Regardless, central banks are experimenting with digital currencies. There are certain nations that have more basic issues that a digital counterpart of a fiat currency may not be able to fix. Countries such as Argentina and Venezuela, for example, have suffered from hyperinflation for years and may benefit from a currency that draws its value from sources other than their own economies. Remittances also contribute significantly to the GDP of nations such as El Salvador, Panama, Guatemala, and Honduras. This opens the door to a type of value exchange that is not bound by national boundaries. Remittances, for example, will account for 24.07% of El Salvador’s GDP in 2020.
Another factor to examine for nations is the level of financial inclusion in their economies. While the customer experience surrounding cryptocurrencies is far from user-friendly, hyperlocal efforts in developing an ecosystem based on bitcoin in places such as El Salvador have had some success. With remittances contributing significantly to the economy, digital currencies may not only aid financial inclusion but also save money on transfer costs.
It should also be highlighted that governments that make Bitcoin legal tender claim to be providing financial inclusion to their people. However, financial inclusion is often preceded by mobile and internet penetration. A digital currency will not be able to tackle the challenge of financial inclusion on its own without the support of digital infrastructure.
So, which nations have made Bitcoin legal tender, and how did they do so? El Salvador is the first nation to legalize Bitcoin. Aside from the aforementioned macroeconomic considerations, the nation had a leader that was eager to experiment with bitcoin. He has since become a devoted supporter of the cryptocurrency.
The Central African Republic is the second nation to accept Bitcoin as legal money (CAR). The Central African Republic has a $2.3 billion economy and is rich in natural resources such as gold and diamonds. However, financial inclusion is minimal, and they depend on remittances. Apart from accepting Bitcoin, the nation recently disclosed that 20% of its treasury would be held in Sango Coin (SANGO), a digital currency that will represent the state of the country’s natural resources.
- What do the nations want to gain by recognizing Bitcoin as legal tender?
Countries depend on effective monetary policy as a crucial economic management tool. As a result, they need a credible currency as well as the capacity to maneuver policies around the currency in times of crisis.
Both El Salvador and the Central African Republic have said that they intend to reduce the cost of money transfers into the nation. El Salvador’s president, Nayib Bukele, forecast a $400 million savings on remittances when the country transitions to Bitcoin infrastructure. Payments made over the Bitcoin lightning network may be less expensive than current methods.
On a macroeconomic level, these nations’ currencies have usually struggled to maintain their value against the US dollar. El Salvador adopted the US dollar as its currency, but quickly found that the majority of its exports were to the US, and a declining dollar caused more damage than benefit to its people. Unlike other Latin American nations, El Salvador had low inflation before adopting the dollar.
Furthermore, they had no authority over the monetary policies surrounding the USD, which is administered by a centralized institution in another nation. As a result, the nation looked to Bitcoin to address its primary remittance challenges while being unaffected by currency swings in the United States.
- What are the obstacles to accepting Bitcoin as legal tender?
When a government uses cryptocurrency as legal cash, it assumes liquidity and regulatory risks in the crypto market. Because the crypto market is heavily associated with US stock markets, changes in Federal Reserve policy will have an influence on crypto pricing.
The majority of these nations’ rationale for embracing bitcoin is the cheaper cost of remittances to a large unbanked population. This may be a superficial explanation since most of these nations have relatively low internet and mobile penetration. As a result, scaling BTC as a default currency would be impractical unless they could put up Bitcoin ATMs around the nation.
The second difficulty is the volatility nature of the cryptocurrency market. El Salvador purchased numerous bitcoins when the cryptocurrency plunged by more than 70% from its all-time high in November 2021. However, the decline in Bitcoin values has been unrelenting, and the majority of these assets are now being held at a loss. A country’s treasury cannot be renowned for prudent economic policy if it has spent its people’ money on a risky asset that may lose 70-80% of its value in six months. The country’s capacity to borrow more from overseas markets is further hampered by its poor cash position.
In addition, national authorities are mostly in charge of Bitcoin rules. Because of the cryptocurrency’s decentralized structure, prohibiting it in one national jurisdiction has no direct impact on its legal position in another. However, when a nation like the United States cracks down on cryptocurrencies via legislation, the market responds. The resulting price movement may have an impact on all nations that accept Bitcoin as legal cash or as a reserve currency.
- Which nations have prohibited the use of Bitcoin and other cryptocurrencies?
For governments to safeguard their people from the hazards of this asset class, prohibiting a global technology and economic paradigm like Bitcoin is not the ideal way. Safeguarding retail clients may be accomplished by guiding them through the process, educating them, and putting in place the necessary controls.
Around the globe, there have been many prohibitions on BTC, other cryptocurrencies, and cryptocurrency mining. Because of its central bank digital money, China prohibited cryptocurrencies in 2021, which also hampered Bitcoin mining. As a consequence, the BTC hash rate is expected to fall in 2021. However, a surge of Bitcoin miners in the United States propelled the sector back to life.
India took a hard stance on cryptocurrency in 2022. If history is any guide, every time this asset class is prohibited in one area of the globe, another region seizes the chance. As a result, it will be exceedingly difficult to slow the expansion of BTC and digital assets in general unless there is a global concerted ban on cryptocurrencies.
Countries that want to prohibit cryptocurrencies in order to safeguard their people who are retail investors are unlikely to succeed. A more collaborative and democratic approach will assist them in achieving their goal of safeguarding ordinary investors.