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Author Topic: Bitcoin as legal tender  (Read 1837 times)
netrin
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June 24, 2011, 03:35:21 AM
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Suppose a small nation or colony decided to accept bitcoins to pay taxes and as a means to pay debt. Would that have positive or negative implications for the goals of the bitcoin community. And what would it take for bitcoin to be ready for this position if such a nation were shopping for a new currency?

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June 24, 2011, 06:32:16 AM
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Why would a government impose as legal tender a currency that it can not print and therefore can not profit from it?
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June 24, 2011, 09:06:25 AM
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Legal tender = monetary monopoly

that's bad, m'kay

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June 24, 2011, 09:15:12 AM
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At one time, governments offered gold-backed money as legal tender so that they had to actually do some work in order to get it.

But these days the whole point of "legal tender" is for governments to steal your property and give you worthless paper in return. 

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June 24, 2011, 10:51:26 AM
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The only way that this could be beneficial is if the "small renegade nation" established a peg to bitcoin for their national currency, thereby providing a consistent way for bitcoin to be convertible to the nation-State world of international wire transfers, etc.

When it comes to countries that ignore the establishment's OECD/FATF anti-money laundering guidelines and tax information exchange treaties, the only two that I know of are Iran and Libya.

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June 24, 2011, 10:55:37 AM
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At one time, governments offered gold-backed money as legal tender so that they had to actually do some work in order to get it.

But these days the whole point of "legal tender" is for governments to steal your property and give you worthless paper in return. 

Governments have always offered gold-backed money as a way to get the population used to a money monpolly. And they never wait to long to start abusing it.
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June 24, 2011, 11:50:25 AM
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Why would a government impose as legal tender a currency that it can not print and therefore can not profit from it?

There are countries that directly use USD or EUR for example as legal tender without pegging or any formal agreement with the issuing governments. They lose out on seignorage profits but they also avoid the hassle of administering a currency.

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June 24, 2011, 01:53:50 PM
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Why would a government impose as legal tender a currency that it can not print and therefore can not profit from it?

Usually this happens only after a catastrophic collapse involve great bloodshed.  But it does happen from time to time.

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June 24, 2011, 03:40:32 PM
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Why would a government impose as legal tender a currency that it can not print and therefore can not profit from it?

There are countries that directly use USD or EUR for example as legal tender without pegging or any formal agreement with the issuing governments. They lose out on seignorage profits but they also avoid the hassle of administering a currency.

Yes, sometime the government is unable to impose a currency for a while because it does not have enough control or the population is very wary against the idea. But its not because they dont want to.

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Usually this happens only after a catastrophic collapse involve great bloodshed.  But it does happen from time to time.

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netrin
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June 24, 2011, 03:57:04 PM
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Why would a government impose as legal tender a currency that it can not print and therefore can not profit from it?

I happen to live in a quasi-independent nation with a tiny population that has requested that the colonial power print its own currency. The imperial nation agreed to print a special colonial-version that could not be redeemed outside of the colony. The offer was declined. So, I don't think the possibility of using or backing bitcoin is too far out.

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June 24, 2011, 07:05:03 PM
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Why would a government impose as legal tender a currency that it can not print and therefore can not profit from it?

As others have pointed out, it happens in certain situations. Even worse, governmnets are willing rely on currencies issued by other governments in those cases: Not only do they not hold the pwoer over the currency as with bitcoin, there's even someone else holding that power.

Here's a few examples:
Montenegro and Kosovo used the German Mark and now use the Euro.
Many small states use the Euro.
Lichtenstein uses the Swiss Franc.
East Timor and Ecuador use the USD.

With the exception of really tiny states this usually happens in times of turmoil, civil war and major economic crisis. We could use that knowledge to make Bitcoin more widespread and to create a suitable global environment for further acceptance of Bitcoin.

Philipp

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June 24, 2011, 07:32:05 PM
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Why would a government impose as legal tender a currency that it can not print and therefore can not profit from it?

As others have pointed out, it happens in certain situations. Even worse, governmnets are willing rely on currencies issued by other governments in those cases: Not only do they not hold the pwoer over the currency as with bitcoin, there's even someone else holding that power.

Here's a few examples:
Montenegro and Kosovo used the German Mark and now use the Euro.
Many small states use the Euro.
Lichtenstein uses the Swiss Franc.
East Timor and Ecuador use the USD.

With the exception of really tiny states this usually happens in times of turmoil, civil war and major economic crisis. We could use that knowledge to make Bitcoin more widespread and to create a suitable global environment for further acceptance of Bitcoin.

Bitcoin is the first non-government money system that I think would be suitable for becoming an official currency.  The main problem right now is that the market is so tiny.  No one can really throw the Euro or the Dollar around, but with a couple million dollars someone could easily take BTC on a violent rollercoaster ride until everyone runs away puking.

These little countries use major reserve currencies because they are too big to mess with, not because they really care about the currency itself, or the nation that issues it.  Oh, and don't forget geography.  Using the same money as your neighbors is another big advantage.

So, to answer the OP, bitcoin needs to grow first.  And then it will be suitable to be granted legal tender status by some nation.

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June 24, 2011, 10:05:54 PM
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Without the ability to create large quantities of bitcoins out of nothing, wouldn't several million USD being pumped into the finite number of circulating bitcoins just increase the price as the demand increases dramatically while the underlying supply remains the same?

Or are you saying that they will bid up the price to extract the BTC from the tradable pool, then sell them back into the market with the intention of losing money in order to tank the market?   But even then, once we get past the first few panics won't people just not sell, knowing the supply/demand fundamentals are in favor of holding what they've got, and buying more at the lower price?   Then you add to that the multiple exchanges (and person-to-person exchanges for commerce), and the whole thing actually seems pretty resilient because for all the people panicing on one exchange, you'll have stronger hands pick up the slack at "bargain" prices, which will stablize the market.

The whole "Can't print more of them, no central authority dictating value" thing really solves many of these problems, these are just growing pains as people understand what it all means

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qualia8
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June 24, 2011, 10:32:30 PM
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Greece should switch over to BTC.  No more euro-denominated debt.  Run a balanced budget, or offer BTC bonds, which at least have the virtue that they cannot be met with a printing press.
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June 25, 2011, 12:29:50 AM
 #15

Greece should switch over to BTC.  No more euro-denominated debt.  Run a balanced budget, or offer BTC bonds, which at least have the virtue that they cannot be met with a printing press.

This is key, and IMO is one of the most attractive features of bitcoins to the end-user.   Fiat currencies only benefit the few at the expense of the many, and that's what the world systems are built on currently.

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