Crypto assets and governments
Fiat money plays an integral role in the modern economic and financial system. It wouldn’t be an exaggeration to claim that modern society would cease to exist as we know it if fiat money suddenly disappeared. Fiat money has no intrinsic value and derives value from the issuer, which is usually the central bank of a country. For example, the Federal Reserve in the US has stated that any US Dollar “shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues.” Central banks are able to achieve greater control over the economy as a result of their ability to influence and control the flow of money.
Crypto assets, on the other hand, are not backed by a central bank. The South African Revenue Service specifically makes mention of this when defining crypto assets as “a digital representation of value that is not issued by a central bank, but is traded, transferred and stored electronically by natural and legal persons for the purpose of payment...”. In a similar vein, the South African Reserve Bank (SARB) mentions that crypto “assets are not guaranteed or backed by SARB as they operate independently from the central bank…”. Given the vast difference in the way fiat money and crypto assets are controlled, governments have responded to crypto assets in the following ways.
Crypto assets are illegal
The most well known country to outlaw crypto assets of some sort is China. However, there are numerous other countries that have also banned crypto assets. A 2021 summary report by the Law Library of Congress lists numerous countries with either implicit or absolute bans on cryptocurrencies. In addition to China, countries with an absolute ban are the following: Egypt, Iraq, Qatar, Morocco, Algeria, Tunisia and Bangladesh.
Crypto asset are official currencies
Some countries have taken the opposite approach. Two countries - El Salvador and Central African Republic - have made a specific crypto asset, Bitcoin, legal tender. Both these countries were heavily influenced by foreign countries. El Salvador used the US Dollar and the Central African Republic used the CFA Franc.
Crypto assets are neither illegal, nor official currencies
Given the financial nature of crypto assets, a country may have different approaches towards it. Many countries have engaged with crypto assets in much milder ways. These include the application of specific laws relating to tax, anti-money laundering and countering the financing of terrorism. The majority of the EU and North America have started to apply these laws to crypto assets in the last five years without making it the official currency of their countries.
*The broad definition of crypto asset is used
If you’d like to read more about crypto assets and blockchain you can read Bitcoin: The new dinar and Is the cryptocurrency craze much ado about nothing?