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Bitcoin is now legal tender in both the Central African Republic and El Salvador, and there have been talks around a number of other countries that may be preparing to follow suit. Obed Namsio, chief of staff for President Faustin‐Archange Touadera, told Reuters that the move was “a decisive step toward opening up new opportunities for our country.” Could a similar move open new opportunities for the United States as well? Or is there a better option on the table that could help level the playing field for all alternative currencies?
In the United States, the concept of “legal tender” has been surrounded by confusion for far too long. For example, it has been commonly argued that businesses cannot deny cash (technically U.S. coins and currency) because of “its legal tender status” and lately, a growing movement of activists has argued that legal tender status would solve many of the legal woes challenging Bitcoin in the United States. Neither argument is correct.
The first argument is an argument for what can be better described as “forced tender status,” whereby the government forces businesses to accept a certain method of payment. People will cry foul when a business refuses, for example, anything larger than a twenty‐dollar bill. They try to argue that the cash in their hand is legal tender and thus the business must accept it. In fact, those arguments have gained so much traction that lawmakers have repeatedly introduced the, ironically titled, Payment Choice Act to restrict businesses from choosing how they want to be paid in order to force the acceptance of cash.
So how does the U.S. code define legal tender? The current statute titled “Legal Tender” (31 U.S.C. Section 5103) says,
United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold and silver coins are not legal tender for debts.
As I explained in a new briefing paper, this statute does little more than denote the acceptability of U.S. coins and currency. It might be inconvenient to do so, but Americans are free to pay for goods and services with bitcoins, euros, pesos, or anything else anywhere someone agrees to accept them. An alternative currency might not be legal tender, but it is neither illegal nor invalid to offer it––at least, not based on Title 31 of the U.S. Code.
This limited nature of “legal tender status” in the United States brings us to the second argument––that legal tender status would solve the legal woes challenging Bitcoin. Not only will legal tender status not force businesses to accept an alternative currency, but it also won’t spare alternative currencies from things like capital gains taxes. In fact, as Jerry Brito and Jake Chervinsky have pointed out, legal tender status would likely do little more than serve as a symbolic endorsement. But even then, a symbolic gesture is unlikely to have a positive impact given all the pressing issues at hand. For instance, the Infrastructure Act’s cryptocurrency provisions created a de facto ban on legal cryptocurrency mining in the United States as well as an expanded level of financial surveillance that is enforced by threat of felony charges––both of which will go into effect in less than a year.
But that’s not to say there cannot be improvements––improvements that could help forge a freer financial system––to how the law treats legal tender status for the dollar, cryptocurrencies, or any alternative currency for that matter.
As the Federal Reserve notes on its FAQ page, “There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services.” The Treasury Department’s Bureau of Engraving and Printing has a FAQ page that makes the same point. So, there is a simple fix that could remedy much of the confusion between the U.S. legal tender laws and the forced tender laws in authoritarian regimes. Congress should clarify the existing legal tender statute by explicitly stating the limits of legal tender so that it is clear that there is no mandate. Doing so would make it clear that U.S. currency is not forced tender and more so, it would make it clear that the use of alternative currencies is not prohibited in the United States.
For additional policy recommendations for leveling the playing field for currency competition in the United States, see my new briefing paper: Congress Should Welcome Cryptocurrency Competition.
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