President Bukele Should Repeal Article 7 in El Salvador's Bitcoin Law
Salvadorans should be free to choose what currency best serves their needs regardless of what the state decides.
El Salvador’s President Nayib Bukele was met with thunderous applause when he announced Bitcoin would be legal tender in El Salvador—a monumental step forward for the cryptocurrency. Yet, some worried about the young President’s authoritarian leanings. Was this move simply a formal acknowledgment of Bitcoin’s success in recent years? Or, was there another motive at play? Unfortunately, those worries were somewhat confirmed when Bukele released his legislative proposal—one which uses the powers of the state to mandate the use of Bitcoin.
The concerning line can be found in the law’s 7th Article where it says, “Every economic agent must accept bitcoin as payment when offered to [him or her] by whoever acquires a good or service” (emphasis mine).
To be clear, Articles 8 and 12 lessen the impact of this mandate by permitting the instant exchange of Bitcoin for U.S. dollars and exempting anyone that does not have access to the necessary technologies. However, as George Selgin has said, “a law doesn't cease to be coercive because not everyone is subject to it." Furthermore, the exact details around how exactly instant transfers and exemptions will be made in practice are still unknown.
What is Legal Tender?
When describing money as “legal tender,” most people think it means a money must be accepted by law. In fact, if you Google the definition, that’s exactly what comes up. Yet, dictionaries can vary. Although the Merriam-Webster dictionary says something similar, the Cambridge, Macmillan, and Collins dictionaries all define legal tender as simply being a money that is recognized as a country’s currency.
Maybe, we should turn to its use in practice. In the United States, Section 31 U.S.C. 5103 says, “United States coins and currency (including Federal Reserve notes and circulating notes of Federal Reserve Banks and national banks) are legal tender for all debts, public charges, taxes, and dues." And both the U.S. Treasury and Federal Reserve have confirmed that there is “no Federal statute manding that a private business… must accept currency or coins as payment for goods and/or services.”
As Ryan McMacken has explained, people in the United States are free to use any currency they like (even Bitcoin)—it’s just rarely seen because it is impractical.
The United States is not alone in treating the definition of “legal tender” this way. England, Australia, Canada, and others all have rules in place where the common theme is that the legal tender is officially recognized, but private citizens are free to form contracts in what they deem best.
Bitcoin: Past and Present
As Jill Carlson warned early in response to the new law, “[Mandating the] use of bitcoin is not freedom. It’s not progress.” But worse than that, mandating the use of Bitcoin goes against the very spirit of what was originally inspired by F.A. Hayek’s work on competitive currencies. Using the powers of the state to mandate its use may push Bitcoin closer to being a commonly accepted medium of exchange, but it does so by sacrificing its very intent.
Salvadorans should be free to choose what currency best serves their needs regardless of what the state decides.
A Devil in the Details, An Angel in the Fog
The law was just three short pages. So just as it is unclear how Salvadorans will be exempted for not having the necessary tech (i.e., where is the line drawn between a phone and computer? Or, spotty internet vs 5G?), we do not know how this law will be mandated. Yet, if the history of governments intervening with money is any indicator, I am less than optimistic.
So while the legislation is certainly a win for Bitcoin, it is not a win for freedom. Though, there is still time to remedy the issue—an issue that boils down to just a few words. President Bukele has shown time and time again that he wants to join the conversation. Now is the time to show he is listening to the community and repeal Article 7 so Salvadorans may be free to choose the currency they need—Bitcoin or otherwise.