- According to the International Monetary Fund (IMF), Bitcoin, Ethereum and XRP (Ripple) are classified as “quasi-monetary units”.
- In the case of the introduction of a Central Bank Digital Currency (CBDC), cryptocurrencies would have to be clearly delineated.
The International Monetary Fund (IMF) recently published a working paper entitled “Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations” in which it analyzes the legal basis of a Central Bank Digital Currency (CBDC) in central banking and monetary law. Interestingly, the IMF also examined the legal status of cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH) and XRP.
In general, the IMF first notes that, in the absence of a legal basis, issuing a CBDC entails legal, financial and reputational risks for central banks. Thus, most central bank laws currently do not allow the issuance of a CBDC to the general public. Second, “it is not obvious from a monetary law perspective that a CBDC can be granted ‘currency’ status”.
In particular, the second “C” in CBDC for “currency” raises fundamental legal problems. According to the IMF, a general differentiation must also be made between “central bank money from private money, such as credit balances on accounts in commercial banks (i.e. liabilities of the latter) or cryptocurrencies (which are potentially no liability at all, such as Bitcoin)”.
Bitcoin, Ethereum and XRP must be distinguished from official monetary units
According to the IMF, a “currency” can be defined as the official currency of a state/monetary union, which is recognized as such by “monetary” law. And since most currency laws reserve currency status for bills and coins issued by the central bank, these are exclusively the US dollar, the euro and other fiat currencies. Therefore, a clear distinction must be made between cryptocurrencies and official currencies.
Examples of official monetary units are the Dollar in the USA, the Euro in the Euro area, and the Yen in Japan. These monetary units are clearly established by relevant legislation and must be distinguished from non-official quasi-monetary units (such as BTC (Bitcoin), ETH (Ethereum) and XRP (Ripple))which are not established by law.
In addition, the IMF also states that legal tender or money must be distinguished from the concept of currency. Although there is no generally accepted legal definition of money, it is generally accepted that the legal term “money” is broader. In addition to currency (banknotes, coins), in many jurisdictions it also includes certain types of assets or instruments that are easily convertible or redeemable into currency, such as book money or even cryptocurrencies.
Some assets (e.g., Bitcoins) may be considered as money under one body of law (e.g., VAT law), but not under another (e.g., financial law).
In response to whether central banks should be granted a monopoly for the issuance of digital currency, the report states that from a legal point of view, extending the current issuance monopoly to digital currencies is not complicated. The existing monopoly provisions would only need to be extended to digital currency.
However, whether a central bank monopoly for digital currency is desirable or appropriate is ultimately a question of political decision. Ultimately, according to the IMF, this would mean:
[…] that private issuers, and commercial banks in particular, would not be authorized to issue digital tokens that incorporate “bearer on demand” claims on currency. (Those tokens would be different from crypto-currencies such as Bitcoin, which do not incorporate such claims, and are legally more akin to a commodity.)