As I have already said in a Bitcoin lecture in the Economics and Law Departments of Pisa University on 1.12.2014, the more I know digital currencies (bitcoin and ripple, firstly), the less I believe that the “smart money” or “the Internet of money” as they are commonly called these new forms of money are competing with the legal tender of each States.
In fact, I realized that the real competitive target of the crypto-currencies is not the “public money” of States issued and regulated by the respective central banks. Nor could it be, as noted by OECD in a recent working paper titled: The Bitcoin question; currency versus trust-less transfer technology; for the simple reason that if the lawful money is based on the political strength of each State to collect taxes citizens must pay them using only legal tender, which is precisely the general leverage over the financial sistem that ensures that the government can affect interest rates in the entire economy. (1)
So it is rather the “institutionalized currency” from commercial banks and other authorized issuers (so called e-Money) — that serves as legal tender — to have been pointed in the viewfinder of such competitive game opened by the crypto-currencies.
The monetary replacement who goes under the general definition of bank money as we know includes bank papers (checks), the most recent forms of credit transfer, direct debits, card-based payments (debit, credit or prepaid cards) and those even more innovative solutions of electronic money transfers associated with payments carried out exclusively and entirely through digital or IT devices. Such cashless payment instruments allowed us, historically, to get forms of “dematerialization of money” more and more extreme in order to meet trading needs became increasingly “remote” and even more requesting speed and safety in payments to neutralize risks and costs of physical money movements.
However, these tools are certainly based on the trust of a third party (a financial institution or State) but they are not so strictly legal tender as could be just the public money of State. As thin as it is the difference with legal tender, in fact, these bank tools are representations of a monetary value, alternative forms of circulation of cash or, to understand better, means of digital “transportation” that allow an easy circulation of value between people. (2)
And wanting to say all, bank tools and e-Money are merely surrogates of legal tender which continues to be issued only by States (and central banks). At least in Italy.
These surrogates are regulated as part of payment system but their transferability into legal tender it is enforced only through contract law, and, although there is a widespread non-refusing track over e-payments, in the Italian law system there is any general and absolute legal obligation to accept them as a mean to get rid of debts. (3)
According to the Italian Civil Code, in fact, the focus of a debt fulfilment remains exclusively based on the legal tender considered by our law system as the only appropriate mean to settle an obligation to pay. And it is easy to understand the reasons, when you consider that the absolute and mandatory effectiveness of the debt riddance is a direct expression of the State monetary sovereignty and that it is only the government to decide what can or cannot settle a contract obligation to pay.
Sure, there is a large possibility to enforce broadly the statutory provision pursuant to the Italian Civil Code that forbids to refuse legal tender in order to prevent clearly also electronic money payments from any eventual refusing. For sure, it would probably be more appropriate to reform the provision in question, explicitly attributing the same debt riddance effects also to e-payments (because, by the way, in Italy, in my opinion, as long as the State will not significantly retreat from the monopoly gave only to legal tender as the only general instrument to fulfil a suitable riddance from a debt we will always continue to have abnormal volumes of cash transactions). (4)
We could continue to debate for hours but the evidence of facts does not change as long as under the Italian Civil Code the payment obligation fulfilment remains what it is and the general acceptance of electronic payments (their “marketability”) is enforced (by government) only through contract law (between counterparties), and through the general fairness (and good faith) due in execution to contractual obligations (see article 1175 Italian Civil Code).
All the above means in poor words that the electronic money must be considered private currency based solely on agreements and on the (good) willingness of creditors to accept being paid with alternative means other than legal tender.
Therefore, if electronic money is a contractual currency it is clear that the real competitive “climbing” of the bitcoin as parallel currency of a private nature also is moved towards electronic money. And it is equally clear then that the technological disintermediation scheme connected to the new crypto-currency of Internet — allowing direct payments between the parties of a transaction without any other third entity to intermediate — is literally disruptive and less costly than the present electronic commerce model based on the conventional electronic payment instruments.
So, like it or not, and with all the problems of crypto-currencies, bitcoin (better, the block-chain on which it is based) is an innovative tool with an area of exchange truly unique and without barriers, from New York to Berlin, from Amsterdam to Asia as well as it is the Internet itself for that matter, and e-payment conventional systems have to deal with it if they want to meet the growing competition challanges.
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1 A. BLUNDELL-WIGNALL, OECD working paper on finance n. 37, June 2014, writes “Crypto-currencies can never become an alternative to legal tender, for the simple reason (as will be explained below) that people have to pay their taxes. This protects existing fiat currencies from being displaced, and the fear of loss of monetary control should not be used as an argument to prevent Bitcoins from circulating as parallel currencies“.
2 F. GIORGIANNI — C.M. TARDIVO, Manuale di diritto bancario e degli operatori finanziari, Giuffrè ed, 2012, p. 685. 3 Nor, in my opinion, the recent introduction of mandatory payments with POS could overcome those things (resulting pursuant to article 1277 Italian Civil Code) to succeed in putting on the same level an e-payment and a cash one in legal tender. First, because there is a limited correlation between new POS payment obligation and the need to limit cash for the anti money-laundering purpose (enforced from L. n. 197/91 and Legislative Decree n. 231/2007). And secondly because as far as a “sub-threshold” payment is concerned the problem of a possible refuse remains still open. 4) In Italy the use of cash has a large number of reason. See for further details, the occasional paper of Banca d’Italia titled “Why are payment habits so heterogeneous across and within countries? Evidence from European countries and Italian regions“.
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Articolo originariamente pubblicato su Medium.
