12.20.2012

The Legal Tender Cases - Part IV


A while back, I wrote about a pending academic research project on digital currencies I was embarking upon with Jeremiah Newhall, a good friend of the site. Below you will find a draft version of a section of our paper addressing the legal context under which Congress has been granted power over all currencies in the US. Part of the reason I am posting this is to solicit feedback, so please feel free to submit your thoughts in the comments section below, and please bear with us on the citations, the poor grammar, the odd formatting etc. etc.
If the net result of the Legal tender cases is that the precedential rulings of the Supreme Court have granted the power over the definition and creation of legal tender to Congress, the corollary, of course, is that Congress has the power to regulate anything which acts like, purports to be, is claimed to be, or replaces the function of, legal tender at its sole discretion; the Legal Tender Cases settle that Congress may declare anything at all to be legal tender: Paper, coins, cowrie shells, and strings of digital code. However, there is a major qualification to this statement, and that is that, in order to do so, it must either write a law which regulates the ostensible currency in question or else apply an existing law to its.

In short, while Congress has not yet addressed Bitcoin or its ilk, it has the ability to do so. And, it is likely that a Congressional decision[i] will determine the fate of electronic currencies, either granting them life or ringing the death knell.

Whether Congress breathes life into, or instead moves to disembowel digital currencies, depends on a hurdle question; is the present situation analogous to the wild cat banking era, which assumes that Congress has permitted the creation of private and competing digital currencies? Or is the present rather akin to the time just prior to the Greenback era, when Congress moved to wipe out competing paper currencies and establish a uniform national paper currency? The answer is unclear.


If digital currencies are analogous to wild cat banking-fuelled currencies, they could go on almost indefinitely so long as users continued to value them. Congress could, of course, pass a law expressly making them legal. However, this seems unlikely at the present[ii], and any government intervention would therefore be more likely to be an attempt to arrest their use, similar to actions it took during the Civil War.

Such an intervention, despite many possible avenues, seems likely to play into two outcomes which would determine the fate of online currencies. One outcome would be the government declaring digital currencies to be illegal, either under a new piece of legislation or via the use of existing legislation by law enforcement officials. The second outcome would be such an attempt, followed by a judicial ruling that the law written or utilized were inapplicable or unconstitutional. As either scenario is dependent upon government action, it is worth discussing some of the means by which it might choose to act.

In the absence of new legislation[iii], a government which desired to eliminate digital currencies already has on point laws on the books at its disposal. Listed from weakest or least applicable to strongest are: 18 U.S.C. § 485, addressing counterfeit bills; 18 U.S.C. § 491, dealing with slugs; 18 U.S.C. § 336 addressing issuance of objects less than $1 in value; and, finally, 18 U.S.C. § 486 which deals with the utterance of coins of gold, silver of other metals.

The applicable text of these statutes, as well as a detailed analysis of their history and potential applicability to Bitcoin, follows.





[ii] PLACEHOLDER TO NOTE THE PAST SHUTDOWNS IN SIMILAR SITUATIONS
[iii] Legislation directly addressing digital currencies is, of course, always a possibility. Such a bill could either be restrictive or permissive. However, in the latter case, it does seem more likely that Congress would abstain from action rather than positively enable a digital currency regime. Whether this would be viewed as beneficial or detrimental from the perspective of users relies entirely upon which user one speaks with.
 
Jeremiah Newhall is a graduate of The George Washington University Law School and currently serves as a law clerk in Chicago. He can be reached via the miracle of email. Joshua Sturtevant is also a GW Law grad, and currently serves as an in-house legal fellow at a renewable energy financing and development firm.

No comments:

Post a Comment