In March 2017, Japan passed a bill to revise portions of the Banking Act. Section 3 of this bill now includes wording on virtual currency and is being tentatively called the “Virtual Currency Act”
Some trade journals state that the Virtual Currency Act gives bitcoin legal tender status in Japan. The following is a sample of articles that state bitcoin is legal tender in Japan:
The status of bitcoin as legal tender in any jurisdiction will have a significant impact on the demand for bitcoin and hence value of bitcoin. It is a significant factor for investors. If investors wrongly believe that bitcoin is legal tender in any jurisdiction they will value it more than it is justified.
We will briefly discuss what legal tender is and if the Virtual Currency Act gives bitcoin legal tender status in Japan.
What is legal tender?
Legal tender is any official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation. The national currency is legal tender in practically every country. A creditor is obligated to accept legal tender toward repayment of a debt. (Legal Tender Definition – Investopedia).
In US, the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled “Legal tender,” states: “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.” This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services (excerpt from an FAQ on Treasury site).
The fact that in the US fiat currency is accepted as payment is not because there is a mandate to accept it, but because there is a demand for legal tender (for payment of taxes and debt).
Japan’s Virtual Currency Act
Bitflyer summarizes the Virtual Currency Act as follows:
“The new law defines Bitcoin and other virtual currency as a form of payment method, not a legally-recognized currency. Bitcoin will continue to be treated as an asset unless there are future revisions or directives to Japanese tax law”.
In Guidance Note on the Japanese Virtual Currency Legislation and … the term “Virtual Currency” is defined as follows:
(i) financial value (recorded by way of electronic means in the electronic devices etc., excluding any fiat currency/ currencies (of Japan or otherwise) and assets denominated in any such fiat currency) which may be used to pay the price in exchange for the goods purchased or rent or the services received to/ against unspecified person/ persons for such goods or services and which may be purchased from and/or sold to the unspecified person/ persons (the “Type I VC”)
(ii) financial value (recorded by way of electronic means in the electronic devices etc., excluding any fiat currency/ currencies (of Japan or otherwise) and assets denominated in any such fiat currency) which may be exchanged, as against unspecified person/ persons, with any such financial value as set out in paragraph (NYSE:I) above and which may be transferred via electronic data processing system (the “Type II VC”).
The Type I VC includes Bitcoin, Litecoin and other VCs which can be used as a payment method.
The Type II VC may include Ether and other VCs which cannot be used as a payment method at this moment but can be exchanged with Bitcoin. A token which can only be exchanged with Type II VC does not fall the definition of the Type II VC.
The above clearly excludes bitcoin as fiat currency and defines bitcoin as a payment method for goods and or rent or services, furthermore it does not require a creditor to accept Virtual Currency toward repayment of debt or government to accept it as payment for taxes, i.e. legal tender.
As I had mentioned before in Bitcoin, Is it a Bubble?, as of this writing bitcoin and other crypto currencies do not have legal tender status in any jurisdiction.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.