Can cryptocurrency be legal tender?

by Lumai Mubanga

Legal tender is usually government-issued and controlled. It is regarded, as a national assert recognized and used as legal tender in other neighbouring countries. Legal tender is also regarded as national pride and a sign of sovereignty. Some more powerful legal tender currencies like the US Dollar are also used as reserve currencies on the international scale. Can the same be said of cryptocurrency?

What disqualifies crypto?

Cryptocurrency especially bitcoins, the worlds most priced asset may have some of the characteristics outlined above. However, it falls short of the most critical features of a legal tender. These include non-governmental issuance, not a national pride or symbol of national sovereignty as well as not suitable for use as a reserve currency due to its volatility. Added to this is its limited supply of 21 million unless its protocols are redesigned to extend this limit.

For and Against

Attempts by some governments to make cryptocurrency as a legal tender has often been met with skepticism. There are mixed feelings regarding the use of cryptocurrencies as legal tender. Some resistance comes from the very institutions that could be supporting this unprecedented financial breakthrough.

A case in point is Venezuela. With biting sanctions from the international community, Venezuela went ahead to introduce its first-ever crypto called the petro. The controversial cryptocurrency, designed to assist the cash-starved economy has since been banned by the US. As a national asset, the currency is far from being widely used and is still fighting for wider recognition.

The second example comes from Marshal island. The Marshall Islands is the first country to launch a legal tender cryptocurrency. Their currency can now be recognized as a new currency and as legal tender, real money. It will have equal status as its national currency, the US Dollar. Interestingly, the name of the new Marshallese currency is called ‘Sovereign’, chosen to emphasize the sovereignty of the country which has a history of colonization. To emphasize further its importance to the nation, the president of the country referred to it as the historic moment for the people to own their own currency, alongside the US Dollar.

Interestingly, the IMF warned the Marshall Islands government about issuing such a cryptocurrency. Certainly, there is resistance. Of course, the main concerns centred on the fact that crime syndicates and fraudulent business practices could manipulate the currency. These are common activities associated with cryptocurrencies. To show more resistance, desire to control, and protect the US dollar on the island, threats were made foreign government could cut financial aid to the Marshall Islands if they broke from the US Dollar as their own e-currency. Clearly, there is still stiff resistance to allow cryptocurrencies to adopt the status of legal tender by individual nations.

From the foregoing, a switch to allow cryptocurrencies to adopt legal tender status by nations will have many implications, largely, unknown. These may start a new age for money and finance that may not be realized. Time will tell how far this tag of war will be resolved.