Countries worldwide are debating whether or not to adopt cryptocurrencies as legal tender. The decision has huge implications for global finance.
In recent months, lawmakers in Venezuela, Switzerland, and Estonia have unveiled plans to create their digital currencies. And while their proposals vary wildly, the common thread is a desire to compete with Bitcoin, which has skyrocketed in value over the past year.
Cryptocurrencies are digital coins that use encryption techniques to regulate the generation of currency units and verify transactions on a decentralized ledger, known as a blockchain. They eliminate the need for banks and physical currency by using peer-to-peer technology.
Bitcoin is the most famous cryptocurrency, but there are hundreds of others, including Ethereum , Ripple , and Litecoin . Their values fluctuate based on supply and demand.
As more governments announce plans to issue their digital currencies, this article reviews countries that may accept cryptocurrencies as legal tender:
What are legal tenders?
Most currencies, including the U.S. dollar, Japanese yen, and British pound, are known as fiat currencies, which means their value is “established by government regulation or law,” according to the Merriam-Webster dictionary. They are considered legal tender because they can be used to pay taxes and settle debts in their respective countries.
Some countries have considered or adopted digital currencies as legal tender. There is no globally accepted definition of a legal tender, so a digital currency’s status as a legal tender depends on its country of origin. Each nation has its laws and regulations defining what constitutes a legal tender.
Are cryptocurrencies legal tender?
There is no simple answer to this, as it depends on your country. In some countries, cryptocurrency is completely illegal, while in others, it’s tolerated but not officially sanctioned. Some countries have even made cryptocurrency a legal form of tender.
In the United States, cryptocurrencies like Bitcoin are treated as property and are subject to capital gains tax rather than sales tax. As such, they can be used to make purchases and pay bills, but merchants don’t have to accept them.
Canada has taken a similar stance: cryptocurrencies are not legal tender but can be used for transactions.
In Australia, the situation is slightly different: Bitcoin has been recognized as legal tender since July 2017, but other cryptocurrencies are still classed as assets which means they’re subject to capital gains tax when sold. Cryptocurrency exchanges also have to register with AUSTRAC (Australian Transaction Reports and Analysis Centre) and follow anti-money laundering and counter-terrorism financing laws.
Most banks won’t accept cryptocurrency deposits in Sweden, so the main way of using Bitcoin is by trading it for kroner or other currencies at online exchanges. The Swedish government doesn’t recognize Bitcoin as an official currency.
Who regulates cryptocurrencies?
The short answer is that it depends.
Cryptocurrencies are like money, but they exist only online. They’re not legal tender — fiat currency issued by a central bank — but millions of investors and merchants worldwide accept them as payment. And they’re not backed by any government, the way physical currencies are.
Who regulates cryptocurrencies depends on who issues them. In some cases, no one does. In others, a single company or consortium oversees the currency’s issuance and maintenance. Some governments have taken steps to regulate these digital currencies, and more are expected to follow suit in the coming months and years.
Can cryptocurrencies be banned?
Yes, governments can ban cryptocurrencies. So far, however, most governments worldwide have not done so.
Many governments recognize that cryptocurrencies present both an opportunity and a threat. As a result, they are not trying to ban them outright but rather are working on ways to co-opt them.
In many cases, this means developing their cryptocurrency or blockchain strategy. In other cases, it means making the cryptocurrency environment safer by introducing regulations or licensing requirements.
Some countries have made it illegal to use cryptocurrencies. They are:
- Algeria
- Bolivia
- Ecuador (although this country has plans to introduce its cryptocurrency)
- Bangladesh
- Nepal
Countries that may accept cryptocurrencies as legal tender
The Bahamas
The Bahamas has been at the forefront of efforts to integrate cryptocurrencies into daily life. In 2017, it announced plans for a national digital currency called The Sand Dollar. This would be a digital version of the Bahamian dollar, currently pegged to the U.S. dollar. The new currency would be available through mobile apps, and it could be used to pay bills online or transfer money between individuals (much like Venmo).
Progress has been slow so far, but if successful, this could lead to wider acceptance of cryptocurrencies in the Bahamas — including those issued by other countries or private entities.
El Salvador
On June 9, El Salvador’s President Nayib Bukele announced his plans to make bitcoin the country’s legal tender. Bukele said that 51% of El Salvador’s GDP comes from remittances sent home from migrant workers in the U.S., and bitcoin can lower remittance costs for Salvadorans.
The president tweeted a video of his presentation at Bitcoin 2021, a conference held in Miami. He said his plan would be presented to lawmakers. He also tweeted that bitcoin was “easy to use, reliable and independent” and would allow people in El Salvador to buy and sell products and services directly.
On September 7, 2021, El Salvador became the first country globally to officially recognize Bitcoin as a legal tender.
Japan
Japan has a long history of cryptocurrency use and has been accepting bitcoin and other cryptocurrencies as legal tender since 2017. In 2016, the country was shaken by the failure of a major bitcoin exchange, the Tokyo-based Mt. Gox, which went bankrupt after a hack in 2014.
However, the company’s failure hasn’t deterred Japan from continuing to embrace cryptocurrencies. The country’s Financial Services Agency began regulating cryptocurrency exchanges in 2017 and established taxation rules for digital currencies like bitcoin.
In May 2018, Japan passed another law that required all cryptocurrency exchanges operating in the country to register with the government. The legislation also placed more security obligations on exchanges, requiring them to collect information on their users and segregate funds from customers’ accounts.
Malta
Malta has been making moves to embrace blockchain technology and cryptocurrency. The country passed three laws in July 2018 that provide a regulatory framework for various aspects of the space, including Initial Coin Offerings (ICO). Most notably, the Virtual Financial Assets Act (VFA) provides a regulatory environment for ICOs. Investors who want to participate in an ICO in Malta must issue a prospectus detailing their project and submit it to the Malta Financial Services Authority (MFSA) for approval.
The government also passed laws that regulate exchanges and service providers. The Maltese government hopes to attract even more blockchain businesses to the country’s shores by providing regulatory clarity.
China
China’s government launched a digital currency called DCEP, backed by the People’s Bank of China.
China is often thought of as having a “ban” on cryptocurrencies, but that’s not the case. The Chinese government-backed cryptocurrency is considered legal tender in the country.
The digital currency electronic payment (DCEP) project from the People’s Bank of China (PBOC) was in development for several years, with initial testing starting in 2019 and 2020. The PBOC clarified that it does not view bitcoin as a threat to its monetary sovereignty, but rather it sees it as an opportunity to create a faster, more efficient financial system.
The PBOC was relatively open about its cryptocurrency plans, before its release. The bank has said that it is similar to bitcoin and Ethereum, but it will not be compatible with third-party blockchains and will not act as a store of value like other cryptocurrencies.
Thailand
Thailand has been quiet on the cryptocurrency front until recently. After a government official claimed that bitcoin was not a currency and would therefore not be allowed for use in payments in 2019. Thailand’s Revenue Department announced that it would start collecting 7 percent value-added tax (VAT) from traders and exchanges of cryptocurrencies. The Department also moved to clarify that digital currencies were not legal tender.
Late last year, however, the country’s Securities and Exchange Commission (SEC) announced its approval of a rule change request from Thai firm TDAX to allow the exchange to list several digital tokens. Thailand’s SEC also said at the time that it is still considering applications from four other companies seeking approval to operate cryptocurrency exchanges.
Switzerland
Switzerland is showing a big interest in cryptocurrency, considering it already has a sizable Bitcoin marketplace. The country’s regulatory framework is so friendly toward the technology that Swiss authorities have been dubbed “Crypto Nation.”
Swiss politicians are also open to using cryptocurrency as a legal tender. In a recent interview with Cointelegraph, Thomas Minder, a senator from the canton of Schaffhausen and an entrepreneur himself, said that he sees crypto as an opportunity for Switzerland.
The country has recently launched its cryptocurrency — Swisscoin. However, it only exists as an ERC-20 token on the Ethereum blockchain and does not have any other form of support from the government or financial institutions.
Gibraltar
Gibraltar’s parliament passed a law regulating distributed ledger technology companies in January 2018. It took effect in January 2019 and has since been used by several cryptocurrency exchanges. The law requires licensees to comply with anti-money laundering policies, including keeping records of transactions on their platform and disclosing ownership information.
The government has also been active in supporting cryptocurrencies outside of legislative action. For example, it hosted the Gibraltar International FinTech Forum earlier this year, covering topics like artificial intelligence and blockchain technology. Chief Minister Fabian Picardo announced plans to create a blockchain-based exchange for trading initial coin offerings (ICOs) alongside traditional securities at the forum.
Conclusion on cryptocurrencies as legal tenders
This list is not exhaustive, but it does offer a good place to begin your research. If you’re curious about a particular country’s stance on cryptocurrencies, there’s more than enough information to get started. We hope that you’ll use this information to make well-informed financial decisions in the interest of protecting your hard-earned money from unwarranted government intervention.