Which Countries Have Adopted Bitcoin as Legal Tender?
The digital currency Bitcoin introduced the concept of decentralized finance to the world in 2009. However, ever since its inception, cryptocurrency has remained a controversial topic. Tax authorities, regulatory agencies, and enforcement bodies around the globe are debating its usage. However, consumers wonder whether they can use Bitcoin legally.
The legal status of Bitcoin varies between countries. Some nations have restricted cryptocurrency use altogether, while others have made it legal. Let us see which countries have adopted Bitcoin as a legal tender.
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What is the Meaning of Adopting Bitcoin as a Legal Tender?
If Bitcoin is considered legal tender in a jurisdiction, citizens can use it as a form of payment. Regulatory bodies and central banks in a nation generally decide on the legal tender in the economy.
Any form of the value exchange they find suitable can be used by citizens to shop for products and services. For example, $0.5 coins and $10 notes are legal tender in the US.
Adopting Bitcoin as a legal tender means people in that country can use BTC to pay for things they purchase at a shop. When the central bank declares a cryptocurrency as legal tender, it becomes an official value exchange mode in the economy. Without this declaration, the risk of accepting the digital currency for goods would be on the sellers.
Which Countries Have Adopted Bitcoin as Legal Tender?
While several nations, including Australia, Germany, Finland, Japan, Italy, Sweden, the US, the UK, and Ukraine, have legalized the use of Bitcoin and other digital currencies, the Central African Republic and El Salvador are the only countries that have adopted Bitcoin as legal tender so far.
El Salvador made Bitcoin a legal tender in September 2021, followed by the Central African Republic, which recently did so in April 2022.
Factors Catalyzing the Adoption of Bitcoin as Legal Tender
A country generally intends to manage some macroeconomic factors through the adoption of any currency as a legal tender. Many countries face problems that only a digital version of a currency might not be able to solve.
For example, Argentina, Venezuela, and other nations have been facing hyperinflation for several years. Countries like Panama and El Salvador have a huge percentage of GDP coming from remittances, paving the way for some form of value exchange not restricted by borders.
Another consideration for nations is the scope of financial inclusion. Despite the unfamiliar nature of cryptocurrencies, some experiments with Bitcoin in a few countries have proven to be successful.
In countries like El Salvador, where remittances contribute hugely to the economy, cryptocurrencies not only boost financial inclusion but also help save costs on remittance fees.
Apart from these macroeconomic factors, the leadership in El Salvador was responsible for this adoption. The leader in the country was excited about experimenting with Bitcoin and has been the ambassador for cryptocurrency since then.
The other country, the Central African Republic (CAR), has an economy of $2.3 billion with rich natural reserves but relies on remittances with a very low financial inclusion.
Consequences of Accepting Bitcoin as Legal Tender
Countries generally rely on sound economic policies to manage economies. This is why it is important to have a credible currency and the facility to adjust the policies around the currency whenever needed.
Both El Salvador and CAR recognized their need to lower the costs of money transfers. They have projected huge savings from remittance as the countries transition to Bitcoin infrastructure.
Talking about the macroeconomic condition of these countries, they had always struggled to hold value against the USD.
El Salvador started using the US dollar as its currency but realized that a weakening dollar would cause much harm to people as it exported so much to the United States. It did not have high inflation before embracing the dollar.
Challenges in Making Bitcoin Legal Tender
When a country considers using cryptocurrency as a legal tender, it focuses on the risks of liquidity and regulation for the crypto market. As the cryptocurrency market has a strong correlation with the equity markets of the United States, any changes to the Federal Reserve policy would impact the crypto prices.
While most countries want to adopt Bitcoin as a legal tender to provide low remittance fees to the population, it is not an appropriate reason because of the low mobile and digital penetration in these nations. It won’t be practical to scale Bitcoin as the legal currency unless they can set up BTC ATMs throughout the country.
The volatile nature of cryptocurrency is another challenge associated with the adoption of Bitcoin as a legal tender. When the price of Bitcoin fell by more than 70% from its highest in 2021, El Salvador invested in the currency. However, the price has further declined, and most positions are held at a loss. A country that puts the money of its citizens in a volatile asset cannot have a strong economic policy.
Countries Banning Cryptocurrencies
Several countries have banned Bitcoin and other cryptocurrencies, as well as cryptocurrency mining around the world. Here are a few countries to ban the use of Bitcoin.
Nepal – The Central Bank has banned Bitcoin as it is not a legal currency.
Bolivia – Considering the unregulated nature of cryptocurrencies, the country’s Central Bank prohibits their use.
China – The country banned all cryptocurrency transactions in 2021.
Algeria – Algeria argues that cryptocurrencies are not backed by any physical entity and hence bans them.
The Republic of Macedonia – The country warns its citizens not to have crypto securities as it is illegal in the country.
Vanuatu – While there are news reports that the nation has accepted BTC in exchange for citizenship, the Office has denied this.
Qatar – Due to the chances of crimes, volatility of price, and lack of government support, this country bans any cryptocurrency activity.
Bangladesh – Being unauthorized by the central bank and considering the risks of money laundering, Bitcoin is banned in Bangladesh.
Ghana – Though this country considers Bitcoin to be illegal, the Bank of Ghana is working on leveraging blockchain’s potential for its economy.
Despite all the arguments and debates, many countries believe in the decentralization power of crypto and have legalized the use of various digital currencies.
While only two countries have adopted Bitcoin as a legal tender, many others are slowly following the path.
It is a critical move for any economy and presents an amazing opportunity to make currency accessible for all segments of the population.