Countries where Bitcoin (BTC) is legal

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What does it mean to use bitcoin as a legal currency?
Unless citizens can demonstrate that they do not have access to the necessary technology, they can use Bitcoin as a form of payment if BTC is treated as legal tender in their jurisdiction.

Central banks and state regulators generally determine what currency is legal in their economy. This means that any form of value they see fit can be used to be legal tender to pay for goods in stores. For example, $10 banknotes and $.50 coins are legal tender in the United States.

Bitcoin (BTC) legal tender procedure means that when someone wants to pay for a cup of coffee, they can use BTC to pay for it. Without a central bank declaring Bitcoin as legal tender, the risk of BTC accepting the goods sold would be with the shopkeepers. If a central bank explicitly declares bitcoin as legal tender, it becomes an official form of value exchange within the economy.

The rise of Bitcoin and a few decentralized cryptocurrencies has prompted many central banks to consider digital currencies as a more powerful alternative to fiat currencies. As a result, many countries including China, UK, US and India are working on Central Bank Digital Currencies (CBDC).

With these countries, the rationale for cryptocurrency adoption is to achieve better traceability and control of every unit of money in the economy. This traceability will help them calculate taxes more accurately and identify money launderers, but more importantly, detect any accumulation of wealth and devise policies to keep it in their economies.

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What factors generally motivate a country to adopt bitcoin as legal tender?
There are usually macroeconomic factors that a country is looking to manage by adopting a currency as legal tender. In order to make bitcoin legal, these factors must coincide with prudent leadership.

Despite this, central banks are getting into digital currencies. There are countries that have fundamental problems that just a digital version of fiat currency may not solve. For example, countries like Argentina and Venezuela have suffered from hyperinflation for years and can handle a form of currency that derives its value from their economies a lot. There are also countries such as El Salvador, Panama, Guatemala and Honduras, where remittances contribute a large percentage of GDP. This paves the way for a form of value exchange that is not constrained by national borders. For example, 24.07% of El Salvador’s GDP in 2020 came from remittances.

Another consideration for countries is the extent of financial inclusion in their economies. While the customer journey around cryptocurrencies is by no means user-friendly, it must be said that local experiments in creating an ecosystem on bitcoin in countries like El Salvador have had some success. With remittances making a significant contribution to the economy, digital currencies can not only help with financial inclusion, but can also generate remittance fee costs savings.

It should also be noted that the regimes offering Bitcoin as legal tender claim to bring financial inclusion to their residents. However, financial inclusion must often precede mobile and internet penetration. Without digital infrastructure, digital currency will not be able to solve the problem of financial inclusion on its own.

So, which countries have adopted bitcoin as a legal currency and how did they do it? El Salvador is the first country to adopt bitcoin as a legal tender. Aside from the macroeconomic factors described above, the country had a leader who was willing to give bitcoin a try. Since then he has become a loyal ambassador for cryptocurrency.

The second country to adopt bitcoin as a legal currency is the Central African Republic (CAR). The Central African Republic is rich in natural resources such as gold and diamonds and has an economy of $2.3 billion. However, financial inclusion is very low and they rely on remittances. Aside from embracing Bitcoin, the country also revealed that 20% of its treasury will hold Sango Coin (SANGO), a digital currency that will reflect the health of the country’s natural resources.

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What do countries intend to achieve by accepting bitcoin as legal tender?
Countries rely on effective monetary policy as the main tool for managing their economies. Therefore, they need a credible currency and the ability to maneuver policies around the currency in times of crisis.

Both El Salvador and the Central African Republic have indicated that they want to make money transfers into the country at a cheaper rate. El Salvador President Nayib Bukele has expected $400 million in remittances to be saved as the country transitions to bitcoin infrastructure. With the Bitcoin Lightning Network, payments may be cheaper than current methods.

On a macroeconomic basis, the currencies of these countries have generally struggled to hold their value against the United States.

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