Recently, Japanese authorities decided to allow foreign stablecoins into the local market. Will digital stablecoins be able to circulate freely throughout the country? And where in the world can cryptocurrencies be used as a means of payment?
Legalization of cryptocurrency
The task of legalizing and regulating cryptocurrencies is solved differently depending on the specific country, but almost always raises many questions among end users and investors: is it possible to pay with cryptocurrency for goods and services, is it worth paying taxes for transactions on the crypto market, and in general, is it legal? just own Bitcoin and make transactions?
Now many countries have taken a course towards the conditional “legalization of the crypto industry.” This is partly facilitated by the gradual introduction of central bank digital currency (CBDC). Regulators often draw up “roadmaps” for development with the goal of bringing cryptocurrency out of the “gray zone”, that is, most often we are not talking about complete legalization, but only about the fact that certain individual operations with cryptocurrency will be allowed.
In this regard, in individual countries, cryptocurrency is legalized differently, depending on the directives of the financial regulator. For example, the European Union is gradually introducing MiCA regulation (Markets in Crypto-Assets), the main provisions of which oblige crypto exchanges to transfer user data and transaction information to specially authorized government agencies. Of course, this goes against the concept of anonymous altcoins.
Another example is Japan, which was one of the first to raise the issue of legalizing the crypto industry, and where currently, with certain restrictions, Bitcoin is accepted as a means of payment by individual market players (including licensed banks). And yet, even in Japan, with its relatively free status, cryptocurrencies bitcoin and altcoins do not belong to the “legal tender” category.
What is legal tender
Legal tender can be broadly translated as “currency in free circulation as legal tender.” This status can be assigned either by individual central banks or by authorized persons (governments, parliaments, and so on). What does this mean for ordinary people?
In practice, as a rule, if a certain asset is recognized as a legal tender, then with its help you can pay anywhere in the country: buy clothes in a store, order coffee in a restaurant, or pay for some training courses.
For example, in Russia, hundred-ruble banknotes, ten-ruble coins and other banknotes related to the Russian ruble are the only legal means of payment. Consequently, the ruble on the territory of the Russian Federation has a status similar to a legal tender. As a rule, legal tenders are received first and often only by fiat government currencies that are in free circulation.
If we talk about cryptocurrency, then, as a rule, a similar algorithm for recognizing the status of a legal tender operates here. Until the relevant central bank establishes that, for example, BTC is free in circulation, and, most importantly, it can be used everywhere and legally for its intended purpose (as money, an item of equivalent exchange in the country), it is so is not. True, here we need to pay attention to two aspects.
Various organizations may accept BTC or altcoins as payment for their goods and services, but they will do so at their own risk unless there is appropriate legislation from the jurisdiction where the companies operate. Hypothetically, the ban on use may be conditional, or the sanctions for such actions will not be strict enough. Then, in practice, people will use cryptocurrency as a means of payment relatively freely.
If the central bank of a country accepts Bitcoin as a legal tender, this does not mean that all other altcoins will automatically become legal as well. That is, to say that cryptocurrency is legalized in the general sense should be with reservations.
Countries that have recognized cryptocurrencies as a legal tender
There are few such states - only two. The first is El Salvador, the second is the Central African Republic (CAR). The authorities of both countries have recognized Bitcoin as a legal means of payment with free circulation. True, all other cryptocurrencies have not yet been recognized there in the same status and, in this sense, have not been legalized. But there is an important fact: in these countries you can actually go into a store and pay with bitcoins.
Both countries are not rich and prosperous. Quite the contrary. Both El Salvador and the Central African Republic have serious fundamental economic problems, and recognizing Bitcoin as a legal tender simply allows them to attract potential investors.
In El Salvador, almost a quarter of total GDP comes from remittances, the share of production of anything remains low. The CAR, in turn, is a country rich in mineral resources, gold and diamonds. However, it doesn't help her much. More than 70% of the population lives below the poverty line, according to 2020 World Bank data.
The adoption of BTC as a medium of exchange aims to attract money into the economy. Although yes, this move shows that legislators in these two countries are ready to move with the times.
Which countries can recognize Bitcoin?
According to CNBC forecasts, some other countries may also recognize Bitcoin as a legal tender in the future. Among the likely candidates is St. Kitts and Nevis. Recently, the Prime Minister of this Caribbean state said that the country’s authorities are ready to consider the possibility of legalizing altcoins. Considering that the economies of many Caribbean countries are built on tax privileges and a favorable investment climate, it is possible that in the future we will be faced with the phenomenon of “crypto-offshore zones”.
Paraguay may also recognize BTC as a legal tender, according to CNBC analysts, following El Salvador. Many well-known politicians in this country have publicly stated that it is necessary to adopt useful experiences.
The situation with the legalization of cryptocurrencies in the world
Each state has its own approach to legalization. Some prefer a complete ban on cryptocurrency, such as in China. In China, the ban was introduced in 2021. That does not prevent the Celestial Empire from developing its CBDC. Interestingly, a complete ban on cryptocurrency in the country did not lead to a complete stop in mining. A significant share of the total computing power involved in the mining of PoW cryptocurrencies still comes from China, although not to the same extent as before.
In Russia, cryptocurrency, on the one hand, is not prohibited, but, on the other hand, it cannot be classified as a legal tender. At the same time, Internet users from time to time come across advertisements for the sale of goods and services for Bitcoin or altcoins. True, it is very doubtful that sellers will notify the tax or other supervisory authorities about this.
In general, the legislation is still at the stage of development and discussion. As before, many concepts are simply missing or have unclear formulations. And the positions of departments vary greatly. Representatives of the Bank of Russia oppose the introduction of cryptocurrency into circulation, while representatives of the Ministry of Finance, on the contrary, are considering the possibility of legalization. The State Duma is currently considering a number of amendments related to the possibility of conditionally legalizing mining. But this can hardly be classified as a legal tender.
An ambiguous situation has developed in the United States. Firstly, the authorities of individual states approach the issue of regulating the crypto market differently, since historically in the United States many issues are resolved at the local level, and not exclusively by the federal government. In the country as a whole, cryptocurrency or Bitcoin separately are not free in circulation. However, in January 2022, Arizona tried to pass a bill according to which BTC would receive the status of legal tender. Moreover, this is the second such attempt by Arizona parliamentarians. The first was in 2020, but even then it was not successful. A number of other states allow any transaction for any money, but the status of the main means of payment remains with the dollar.
In Switzerland, cryptocurrency is not freely traded. But in the separate city of Lugano, an interesting situation is developing: the authorities there announced back in 2021 that they were going to de facto give the stablecoin Tether and Bitcoin the status of a legal tender. However, when performing the appropriate transactions, the cryptocurrency will be automatically converted into Swiss francs through a special intermediary.
Quite loose legislation regarding cryptocurrencies has been formed in Japan. Let us repeat: here it is still not a legal tender. But no one prohibits holding cryptocurrency, trading it, and in certain cases (for a number of participants) using it as a means of payment. Further legalization is supported by a recently adopted law, according to which trading in foreign stablecoins on exchanges is allowed. It is worth adding that although in Japan cryptocurrency does not belong to legal tender, there are organizations that still accept it as payments. For example, the large company Rakuten accepts a number of coins to replenish its Rakuten Pay and Rakuten Point services.
In December 2022, Brazilian President Jair Bolsonaro signed a law recognizing Bitcoin as a means of payment. A reservation is also made here that cryptocurrency will not be recognized as a legal tender. In addition, where it can still be used as a means of payment will later be determined by the local central bank. So it seems that you can pay, but not everywhere. Most likely, the story will be the same as in Japan or the USA.
The situation in Taiwan is somewhat different. Here, banks are absolutely prohibited from being involved in the process with cryptocurrencies. In addition, in the summer of 2022, it was proposed to introduce a ban on the use of credit cards when conducting transactions with cryptocurrencies. But on all other points there is no legislation as such. Well, since it doesn’t exist, then you can nominally buy it.
In India, cryptocurrency is essentially neither regulated nor banned. It can be assumed that investing, saving or using cryptocurrency as a means of payment is acceptable. But even here it is necessary to monitor legislative initiatives; many wordings are vague and can be changed at any time.
In Australia, the attitude towards cryptocurrencies is quite warm: they are legal there. However, they do not have the status of legal tender. Although the current category may be revised in the future, Forbes reports. It is nominally impossible to buy the same real estate with cryptocurrency today. However, there is a known case when in Australia in the past a house was sold for BTC at auction.
conclusions
If we talk about where you can pay in cryptocurrency for goods and services, then all states can be divided into four categories:
Where cryptocurrencies became a legal tender (El Salvador and the Central African Republic).
Where they are prohibited (China, North African countries and some others).
Where the clear status of cryptocurrency has not yet been determined (either it is being determined at the moment or depends on a particular region of the country), and therefore there is no clarity on the question of whether it is possible to pay in cryptocurrency (most countries of the world: USA, Singapore, India and so on).
Where it is clearly stated that cryptocurrency or individual digital coins are a means of payment, but are not a legal tender (for example, Brazil).
