As many of you know, I'm working on a series about BitCoin and my research is fast approaching adequate to produce a book-length exposition on the subject. I'm doing my best to pare it down, but in the meantime I've been coming across a few things I think you guys would be particularly interested in, and today's post is one of those things. The government may be poised to take an utterly unprecedented step to kill the nascent virtual currency before it becomes a real threat to the dollar.
So what exactly constitutes legal tender?
First of all, I think it's important to define what legal tender is and what it is not because, while you probably think you know what it is, you might be mistaken. Very simply, legal tender is any form of currency which must be accepted for payment of debts and monetary transactions. Put simply, you cannot refuse to accept legal tender.
At various times throughout history, legal tender laws had some real teeth to them, too. In a number of different circumstances, the penalty for refusing to accept a government-issued currency was death. Think about that for a minute. You had to accept (an often rapidly deteriorating) government currency under pain of death. That's how seriously issuing governments take legal tender laws.
Now let's talk about what legal tender is not. Legal tender laws do not under any circumstances forbid the acceptance of mutually agreed-upon stores of value for the satisfaction of debts or monetary transactions. In other words, if I want to exchange my bull for your three cows and you agree, that's perfectly fine. Likewise, if I'm selling a product or service online and I choose to accept BitCoins (or anything else, for that matter) as payment, someone paying me in BitCoins violates no laws whatsoever.
Until it does.
I'm not going to go into any great detail here, but BitCoins represent at least a nominal threat to every single denomination ofcurrency worldwide. There is no Central Bank or governing body issuing or controlling the supply of BitCoin, there is a finite supply of BitCoin available, and the usage of BitCoin can be as anonymous as the users of BitCoin choose for it to be.
For all of these reasons, but mostly due to the recent tomfoolery on the part of the ECB and various other actors in the region, the value of BitCoin has exploded. A BitCoin was worth $36.65 USD just 30 days ago; 30 minutes ago it traded at $195 on what is largely an ironic flight to quality.
The reason I'm bringing all this up really has nothing to do with BitCoin itself. The reason I'm bringing it up is that it appears a number of US states are turning their backs on the dollar, at least symbolically. And that's not good for anyone, especially an anonymous currency that makes the dollar look bad by virtue of the fact that it cannot be perverted by a Central Bank.
Under the twin spotlights of declining faith in paper money and redneck states pining for a return to a gold standard no one remembers, BitCoin might prove to be too clever for its own good.
Let's face it: the US government doesn't take too kindly to monetary competition. I'm reminded (sadly) of the Liberty Dollar. So swift and violent was the FBI response to Liberty Dollars once they started to catch on that it shocked everyone. The feds confiscated $7 million worth of legally purchased and stored "Ron Paul" silver dollars and never gave them back.
Cullen Roche thinks BitCoin might be headed for the same fate, and I have to say I'm afraid I agree with him. If BitCoin becomes too great a threat to the dollar, the feds will just reverse-legal tender it and make it illegal to accept BitCoin for anything. It'll be like buying groceries with cocaine.
I happen to think it's a sad commentary on the impotence of governments that, rather than modify monetary policy to more closely reflect the desires of the end user, the response is always criminalization. But as one WSO user reminded me the other day, and as governments never seem to learn:
You can't stop the signal, Mal.