Bitcoin as legal tender : challenges and opportunities for nations without a sovereign currency

Abstract

The creation of Bitcoin brought blockchain and distributed ledger technology to the world as an alternative to money and a form of sovereignty. Thereafter, the monetary value of Bitcoin has established itself as an investment asset, leading to a revolutionary shift in the global financial sector. With El Salvador becoming the first country to officially adopt Bitcoin as legal tender, Bitcoin has further changed the financial landscape on a national level. It is a milestone for Bitcoin but there is still a long way to go, given it is not yet recognised as a currency by every country. This dissertation examines the adoption of Bitcoin as legal tender, particularly focusing on its impact on countries without sovereign currencies. The study reviews the principles of money and legal tender, together with Bitcoin's unique position within these structures. The International Monetary Fund's (IMF) view on El Salvador's decision to adopt Bitcoin is examined, underlining concerns regarding price volatility and financial stability for the nation. Using a comparative case study methodology, the research focuses on the early adoption of Bitcoin in both national and city-level contexts, examining El Salvador and the Central African Republic alongside Lugano, a Swiss city that promotes Bitcoin usage without granting it legal tender status. The research discusses El Salvador's challenges such as readiness at technological levels, while also highlighting opportunities for financial inclusion and economic independence. Comprehensive regulatory framework, nationwide investment strategies and a diversified financial ecosystem are potential solutions to address the IMF's concerns. The concluding section recommends research and development in respect of influence of cryptocurrencies to monetary policy, impact on financial systems, data utilisation and privacy.