Caitlin Long, what’s the big deal what’s “legal tender” anyway? It’s a commercial law term (means citizens must accept “X” if offered in payment of an obligation in exchange for delivering property). Legal tender is key to commercial law, which is THE foundational layer of any legal system.
In 2018, some in Wyoming wanted to make Bitcoin legal tender, as Wyoming had already done w/ gold & silver. Article 1 Section 10 of US Constitution mentions gold & silver explicitly, but making anything else legal tender in US requires amending the US constitution.
So, it wasn’t possible to make Bitcoin legal tender in the US without amending the US constitution. I thought at the time another country might do it though, & thereby open the door to treatment of Bitcoin as “money” under commercial law + “cash” under acctg rules.
I’m not an accountant so making an educated guess. Bitcoin is treated as an “indefinite intangible” which means lower-of-cost-or-market, but if it’s a foreign currency it gets mark-to-market up and down.
And, if I’m right, other corporate treasurers could also buy Bitcoin w/o facing its punitive accounting treatment they’d now account for it like any other foreign currency. No more adverse accounting more companies start holding Bitcoin.
Back to the law. Commercial law lays out the rights and obligations of parties when exchanging property + establishes a road map for judges to adjudicate disputes.
GOT IT–*IF* ElSalvador does pass legislation to recognize Bitcoin as legal tender, BTC would v likely become *MONEY* under US commercial law: “Money means a medium of exchange currently authorized or adopted by a domestic or foreign govt”)
What’s the significance? Well, it means Bitcoin would gain special status in banking systems globally. Banks would likely treat it as any other foreign currency. Bitcoin *MAY* get back-door favorable treatment under bank capital requirements (Basel 3, etc).
The knock-on effect of El Salvador’s announcement is that other countries may now follow. One likely candidate has always been Russia, which has been gradually de-dollarizing since before the 2008 financial crisis. Will be v interesting to watch the foreign policy moves.
However this plays out, it’s a historic day for Bitcoin & it advances adoption no matter how it plays out. Wonderful for all involved. Congrats to everyone most especially to the people of El Salvador’s.
Users were like: How is this any different from Japan? Seems like a nothing-burger if they’re not really the first.
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