This post is a response to this video discussion of El Salvador's new Bitcoin Law between Naomi Brockwell @skycorridors and reknown Austrian School economist George Selgin.
They make a number of serious criticisms of the law from a libertarian economist perspective which I answer from a "practical libertarian" lawyer perspective.
1. Currency Choice vs the Sovereign Right of Nations to Chose their Legal Tender
Naomi & George say that articles 7 and 13 of the law coerces the use of BTC and this is bad from a libertarian perspective.
Much of George's criticism amounts to general criticism of legal tender laws which most nations have.
I understand the objections to making use of BTC compulsory from a libertarian purist perspective but this is an essential aspect of making something legal tender and is a core expression of national sovereignty. This indeed is why it is such a monumentous development.
Nation States get to choose which currencies their people must accept (but do not get to constrain those currencies their people may accept).
Indeed George seems to think its wrong for a Nation State to coerce their citizens about anything, even something as fundamental to sovereignty as the right to determine the nation's legal tender.
To do away with this fundamental right of a Nation State is to do away with Nation States altogether.
I know that this what libertarian purists would like but there is currently no alternative (as much as I would like there to be).
Humans are fragile physical beings that require the security and safety of the group for survival (especially of their vulnerable young). In the age of modern weapons the Nation State is the smallest group that can provide this protection.
2. Does the Law create coercion or choice?
Naomi & George say that article 7 of the law coerces merchants to accept BTC and this is bad from a libertarian perspective.
I say that this is not actually true in a practical sense with a correct legal interpretation of the operation of the law.
The law does not actually compel the acceptance of BTC by a merchant in a practical sense, only in a theoretical sense and to provide the customer the right to pay in BTC.
The purpose of the $150M fund, as I understand it is to allow merchants to immediately obtain the amount of USD that the goods were priced, irrespective of BTC-USD movements.
That is if the basket of bananas is priced at US$5 and a customer wants to pay in BTC the merchant charges whatever amount of BTC the app calculates and but the merchant gets $5 in his app (if they elect to receive in USD).
This means that the effect of the compulsion to accept BTC is actually just to make electronic BTC available as a means of payment.
The merchant is not actually forced to accept BTC itself, just to accept payment via BTC.
Thus ideas about currency choice are not actually infringed, but are enhanced by giving customers a choice without undermining merchant choice.
Customers are given the right to pay in BTC if they choose but merchants are not actually forced to accept it - there is no coercion, just choice.
3. Does the Law change the Tax and Accounting treatment of BTC in other countries?
Naomi & George say that the law doesn't create changes in the tax and accounting treatment of BTC by other nations because it doesn't make BTC "sovereign money".
I say that this is not the legally relevant question.
On the issue of impact on other countries treatment of Bitcoin the question is not: Is it "sovereign money" but: Is it "foreign currency" as defined by existing law in other countries.
The answer to that question is a resounding YES.
See for example in Australia.
"32. The Commissioner considers that when defining 'foreign currency' as 'a currency other than Australian currency' in section 995-1, Parliament intended to use the term 'currency' in the same sense that 'currency' is used in the Currency Act - namely, a currency legally recognised and adopted under the laws of a country as the monetary unit and means of discharging monetary obligations for all transactions and payments in that country. Consistent with the Currency Act, this concept of currency is in turn divided into two types for the purposes of the ITAA 1997:
- Australian currency, and
- every currency that is recognised and adopted by the laws of any other sovereign State as the monetary unit and means of discharging monetary obligations for all transactions and payments in the respective sovereign state (that is, foreign currency).
"33. As bitcoin is not a monetary unit recognised and adopted by the laws of any other sovereign State as the means for discharging monetary obligations for all transactions and payments in a sovereign State, it is not 'foreign currency' for the purposes of Division 775 of the ITAA 1997.
https://www.ato.gov.au/law/view/document?DocID=TXD/TD201425/NAT/ATO/00001
El Salvador recognising BTC as legal tender makes it "foreign currency" in Australia and thus changes its tax and accounting status.
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Interesting, but nothing to get euphoric about, in my view.
The thing is, El Salvador doesn't have a own currency at all. They used the US$ so far and still do - probably to avoid being dragged into a hyperinflation spiral that ends up in a general use of the US$ anyway (most likely in a illegal manner), as it happened to many countries before.
This official use of the US$ has its own problems, of course. Especially in recent days the stability of the US$ and its purchasing power is more than questionable. In addition there is the matter of taking influence on internal Salvadorian politics by the USA via the US$ supply.
So its not so surprising that the Salvadorian Government is looking for a alternative to the use of US$. Other currencies, like the Euro, Yuan, Yen or whatever does not really improve anything, it only swaps the name. Therefore a crypto currency is a logical step, since its not controlled by a nation - even if it is less than practical to use it as a currency.
Btw., the status of BTC (or any other crypto) in regard of tax laws is probably the most important aspect of the entire crypto currency discussion. Without that, no government would give a fuck about cryptos at all. Controlling the currency flow and taxing it is what the whole nation/government/economy/politics thing is about. Anything that disrupts this system will not be tolerated.
If I get a bank account in El Savador, can I simply deposit Bitcoin, getting it traded for dollars? They don't have their own currency. They use dollars as their sovereign currency. Doesn't that kind of turn them into a physical crypto exchange, in oh-so-many ways?
That's a very interesting point.
Both BTC and USD are legal tender and there is automated government provided exchange from BTC to USD.
This may make El Salvador an excellent, secure (likely non or limited KYC) exchange between BTC and USD.
Wow super interesting and important post!!!
Well, that's interesting.
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