Country XXXX declares Bitcoin legal tender. What happens next?

[speicher]

Perhaps this has already been discussed.

I could not find the right search words to locate it if it has, so please excuse the question and point me to the post.

There are a lot of small countries (Islands mostly) that have multiple currencies as their legal tender. Ascension Island has for example the Ascension Pound and the Saint Helena Pound as their legal currency. Their main product is the selling of WEB domains and Stamps (according to Wiki).

What if a similar country declared Bitcoin a legal currency. What would happen?

Do other nations have to honor the currency of the country?

Do the banks in other nations then have to honor accounts holding Bitcoin?

Would the country declaring Bitcoin legal tender have any advantages concerning Bitcoin exchanges?

Is this even possible?

[DeathAndTaxes]

None of those things.

The declaration of legal tender would apply only to that country and only in a very limited scope. 

In the US legal tender means it can be used to pay debts, damages awarded by courts are denominated in legal tender, and legal tender is only accept method to pay tax liabilities. Nothing more.

Outside of that extremely small scope you can use other currencies in the US.  For example a shop in the US could accept Euros, pay customers in Euros, issue invoices in Euros, have Euro denominated bank accounts, etc.  A shop can even refuse to accept payment in US dollars (but not for debt). 

So legal tender has a very limited scope and Bitcoin could (not saying it will) become the most used currency in the world without being legal tender in any nation.

[odolvlobo]

The declaration of legal tender would apply only to that country and only in a very limited scope. 

That's not quite true. A country declaring Bitcoin as a legal tender would affect Bitcoin under many laws in the U.S. that apply to the legal tender of a foreign nation. For example, FinCEN would regard Bitcoin as a "real" currency and no longer a "convertible virtual" currency:

(m) Currency. The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance.

[DeathAndTaxes]

Good point.

Ironically is that happened it would reduce regulation as Dealer if Foreign Currency is generally less regulated at the state level than money transmitters.  Come on Somalia make Bitcoin your legal tender.

[edmundedgar]

The declaration of legal tender would apply only to that country and only in a very limited scope. 

That's not quite true. A country declaring Bitcoin as a legal tender would affect Bitcoin under many laws in the U.S. that apply to the legal tender of a foreign nation. For example, FinCEN would regard Bitcoin as a "real" currency and no longer a "convertible virtual" currency:

(m) Currency. The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance.

If some helpful country did that it would probably come as a relief to a lot of tax authorities and financial regulators, because it would allow them to stick bitcoin in a pre-existing box (foreign currency) that fits it pretty well for most practical purposes, but that they may not currently be technically allowed to put it in under existing legislation.

[speicher]

What would the incentive be for a country to declare Bitcoin legal tender?

I don't see any benefit to a very large country like the USA, but perhaps for a very small country there would be a benefit.

Would it make it easier for Bitcoin exchanges or other Bitcoin service companies to set up shop in this small country and then do business all over the world?

Would the country then be able to reap a benefit from taxes on these companies. The companies will have to pay taxes anyway to some country. Why not to the country that declared Bitcoin a legal tender.

[Lethn]

They haven't declared it legal tender, but they have declared it private money.

http://rt.com/news/bitcoin-germany-recognize-currency-641/

I think that's the most we could ever hope for, because the state hates the idea of losing power over the creation of it's own currency.

[ISAWHIM]

What would the incentive be for a country to declare Bitcoin legal tender?

I don't see any benefit to a very large country like the USA, but perhaps for a very small country there would be a benefit.

Would it make it easier for Bitcoin exchanges or other Bitcoin service companies to set up shop in this small country and then do business all over the world?

Would the country then be able to reap a benefit from taxes on these companies. The companies will have to pay taxes anyway to some country. Why not to the country that declared Bitcoin a legal tender.

No reason to have counterfeiting insurance or agencies.. (less overhead use costs and restrictions)

No "printing", thus, no associated maintenance or losses due to cost to print, record, destroy, recycle.

No need for expensive underlying networks for transmitting and tracking... We already do that. (Less overhead costs.)

Direct bank use, storage and tracking. (Countless benefits there.)

All those costs come from your dollars/FIAT's value, and taxes.

What advantages does FIAT have? Banks as we once knew them, are a breed that will die. Transactions take too long, communication between banks is slow, and records are just useless to most people. Not to mention all the hidden fees and overly complex operation, just to spend a dollar, or save a dollar. We no longer need banks. Get rid of them. They better upgrade to BTC loan-agents, or they will no longer have a use.

P.S. Iceland has made Auroracoin an official "currency", and accepts BTC as a currency.

[odolvlobo]

I think that's the most we could ever hope for, because the state hates the idea of losing power over the creation of it's own currency.

Yet countries are joining the euro.

[GVanelly]

It's not possiable because the state hates the idea of losing power over the creation of it's own currency.

[minime]

It's not possiable because the state hates the idea of losing power over the creation of it's own currency.

i do not know where you life but governments do not have the power to create money... this is mostly done throu "independent" central banks...

[murraypaul]

P.S. Iceland has made Auroracoin an official "currency", and accepts BTC as a currency.

Really? You have any evidence for that?

[Clobered09]

i do not know where you life but governments do not have the power to create money... this is mostly done throu "independent" central banks...

I believe every country, except those that have joined economic unions under certain conditions, retain the power to create money.  For instance, in the US, the Federal Reserve (which is a governmental agency that's only independent in the sense that executive discretion is extremely limited) controls the money supply, and if Congress really wanted to (and had agreement from the president or dual super-majorities), it could direct the Federal Reserve to create more money.  This is an inherent power of national governments.

[Griegura]

i do not know where you life but governments do not have the power to create money... this is mostly done throu "independent" central banks...

I believe every country, except those that have joined economic unions under certain conditions, retain the power to create money.  For instance, in the US, the Federal Reserve (which is a governmental agency that's only independent in the sense that executive discretion is extremely limited) controls the money supply, and if Congress really wanted to (and had agreement from the president or dual super-majorities), it could direct the Federal Reserve to create more money.  This is an inherent power of national governments.

Trully independent Central Banks are an exception!

[Clobered09]

Trully independent Central Banks are an exception!

In the US at least, a truly independent central bank would be logically impossible short of a constitutional amendment, as Congress retains perpetual plenary power over its domains, subject only to the Constitution.  Congress today can make the Federal Reserve as independent as physically possible, but it cannot prevent Congress tomorrow from revoking that independence. 

[tkbx]

About 1/4th of this forum moves to XXXX.
Really though, on the off chance that this happens within 10 years, I can see a large number of Bitcoin users moving to a country which officially endorses Bitcoin. Unless it's Columbia or something, then it might only be a moderate portion of us 

[Phil Dann Ward]

I assume that if country XXXXX recognised bitcoins as legal tender then they would be saying that a bitcoin was imbued with implicit (though probably not intrinsic) financial value.

If someone was to con you out of some of your bitcoins (e.g. by failing to provide agreed goods or services which you had paid for with bitcoins) within XXXXX's jurisdiction, then XXXXX's legal system would have to take the view that you had suffered an illegal financial loss, i.e. that you had been criminally defrauded. Beyond any criminal case that XXXXX's justice system might make against the fraudster, you could mount a civil case against the fraudster through XXXXX's legal system in an attempt to recoup your bitcoins.

So XXXXX effectively stands as a trusted(?) third party arbiter for resolution of disputes of bitcoin denominated trades within its jurisdiction; although it's worth bearing in mind that legal systems generally (and therefore probably XXXX's as well) will only take action against or in support of identifiable entities (I.e. individual people or registered companies/organisations) so if your bitcoin-based trade is (truly) anonymous then you probably can't expect to get any help from XXXXX's legal system.

I'm guessing that if a trade goes wrong at the moment (in any jurisdiction) and somebody effectively 'steals' your bitcoins, no jurisdiction recognises bitcoins as being money, and thus no legal system will consider you to have made a financial loss and they won't get involved.

I don't know what the legal status of bitcoins is in various places...in some places they might be considered to be *data* which belongs to you and thus somebody who steals your data may be considered to have committed a criminal act. In terms of trying to get financial restitution for your loss, you would have to convince the authorities that your (bitcoin) data had demonstrable financial value and thus that you had suffered financial loss from the loss of the data. Part of that might be in showing that you could have used your (bitcoin) data (I.e. Spent your bitcoins) in return for goods, services and/or an amount of legally recognised fiat currency and thus that your stolen bitcoins were worth that amount of financial value which ought to be returned to you. Good luck with that one!

[Clobered09]

I'm guessing that if a trade goes wrong at the moment (in any jurisdiction) and somebody effectively 'steals' your bitcoins, no jurisdiction recognises bitcoins as being money, and thus no legal system will consider you to have made a financial loss and they won't get involved.

Why would it matter that what was stolen isn't money?  If I trade my motorcycle to Bill for his car, and he finds a way to defraud me (fake title or something of the like), you honestly think the court says "oh, well, since no money was involved, there was no theft"?  That's not how the legal system works.

[Phil Dann Ward]

I'm guessing that if a trade goes wrong at the moment (in any jurisdiction) and somebody effectively 'steals' your bitcoins, no jurisdiction recognises bitcoins as being money, and thus no legal system will consider you to have made a financial loss and they won't get involved.

Why would it matter that what was stolen isn't money?  If I trade my motorcycle to Bill for his car, and he finds a way to defraud me (fake title or something of the like), you honestly think the court says "oh, well, since no money was involved, there was no theft"?  That's not how the legal system works.

It doesn't matter whether what is stolen is money or not. What matters is that you have been defrauded of something that has legally recognised, financial value, in your example, your motorcycle.

The point I was trying to make is that fiat money is legally recognised as having financial value but bitcoins (probably?) are not recognised as such so if somebody steals your bitcoins it is not at all clear to a court of law that that you have suffered any sort of financial loss that they could try to sort out on your behalf.

[murraypaul]

I'm guessing that if a trade goes wrong at the moment (in any jurisdiction) and somebody effectively 'steals' your bitcoins, no jurisdiction recognises bitcoins as being money, and thus no legal system will consider you to have made a financial loss and they won't get involved.

Why would it matter that what was stolen isn't money?  If I trade my motorcycle to Bill for his car, and he finds a way to defraud me (fake title or something of the like), you honestly think the court says "oh, well, since no money was involved, there was no theft"?  That's not how the legal system works.

It doesn't matter whether what is stolen is money or not. What matters is that you have been defrauded of something that has legally recognised, financial value, in your example, your motorcycle.

The point I was trying to make is that fiat money is legally recognised as having financial value but bitcoins (probably?) are not recognised as such so if somebody steals your bitcoins it is not at all clear to a court of law that that you have suffered any sort of financial loss that they could try to sort out on your behalf.

Gold is not legal tender, but has value.
Shares are not legal tender, but have value.
Land titles are not legal tender, but have value.
And so on.