Are ‘Legal Tender’ Laws Even Necessary?
The Central African Republic, a landlocked country in sub-Saharan Africa and roughly the size of Texas, has passed a law that will integrate crypto into its economy. This makes it the second country after El Salvador to give crypto equal footing among fiat currencies.
However, the country is not exactly replicating the Great Salvadoran Bitcoin Experiment, the republic’s Minister of Digital Economy, Post and Telecommunications Justin Gourna Zacko, who introduced the bill, has said.
Crypto will now be accepted for tax payments, and can be used to settle private transactions across the country, Zacko said. So the move is more like a country legalizing crypto use in financial markets than explicitly elevating bitcoin (BTC) or other cryptocurrencies as “legal tender.”
Just a few years ago, it would have seemed crazy if a country like El Salvador or the Central African Republic embraced crypto. The technology is still largely experimental, even if the industry itself is a massive wealth creator and lucrative source for tax revenues.
In fact, months before Salvadoran President Nayib Bukele announced the Central American country would go full-bore into bitcoin, an esteemed Georgetown University professor of economics, James Angel, told The Node it was unlikely central banks would ever bulk up on bitcoin.
Gold, for governments, is “Armageddon insurance,” Angel said. Crypto – the volatile, purely synthetic, non-state version of fiat currencies – is itself a bit of a doomsday tech.
But here we are, with the dominoes starting to fall. Notably, the democratically elected “shadow government in Myanmar, ousted from power after a military junta, calls the tether (USDT) stablecoin its official currency. There are other bills in other countries that are also seeking to level crypto up.
In January, an Arizona state senator reintroduced a bill to make bitcoin legal tender in the state, after a similar initiative failed to make the ballot in 2020. It’s unlikely that bill will go anywhere, political commentators noted.
Others have raised deeper questions about the nature of “legal tender” laws, asking whether they are even necessary or hold true to crypto’s endgame of separating money from the state. In the U.S., for instance, willing participants can basically transact with whomever they want using whatever type of money they want.
Further, several U.S. states had or have accepted crypto payments at tax time. (I have no idea why anyone would want to give their addresses to the government, opening up surveillance of their entire transaction history!)
For his part, Zacko said integrating crypto would help reduce fees for financial transactions in and out of his country. It might also be a bit of a salvo for a country that has experienced on-again, off-again civil conflict, and where crypto adoption was already picking up.
He also spoke to the importance of being ahead of the curve, and appearing technologically progressive.
Critics in the country expressed “strong reservations” about the law (which passed unanimously because opponents reportedly abstained), including money laundering risks and potential impacts on foreign direct investment or international aid.
Both the International Monetary Fund (IMF) and U.S. government have been widely critical of El Salvador’s bitcoin plans, and the country’s credit was downgraded. It’s not clear yet whether bitcoin will be worth those costs, considering adoption has been relatively slow.
The Central African Republic will also invest in “infrastructure development” to galvanize crypto use. Reportedly, only 11% of the republic’s approximately 5 million citizens have access to the internet while 30% have mobile phones.
Crypto may be about separating money from “the state,” but it’s entirely possible that the best effects from this law come from the government investing in its people.
–Daniel Kuhn
