Your country could accept cryptocurrency for your taxes, if just chooses not to.
Not really. It would have to sell the crypto for its sovereign currency. The whole point of issuing+taxing currency is to get citizens to do favors for the government.
If you’re paying citizens for favors in USD, but accepting BTC to clear out “favors owed”, nobody has any incentive to chase USD, because any amount of BTC usage is going to dilute the value of their USD.
Unless you keep the amount of BTC you accept tied to its current market value in USD. But that’s not really “accepting” crypto, that’s just selling it on their behalf as a convenience.
The government could keep some amount of other currencies around for the purposes of things like tax refunds, and not liquidate all other currencies upon receipt. If you choose to denominate your return in Euros, you’d get your refund in Euros, and the tax authority would buy any additional Euros they need in order to process your return.
There’s no real requirement that everything be denominated in USD (or whatever your local currency is), that’s just a preference by your tax authority.
But my real point here is that whether your local tax authority accepts a given currency for payment has little to do with whether that other currency is “real.” USD are just as “real” as cryptocurrencies, they just differ in who accepts them and how money supply is managed.
It needs to be able to destroy the tax money after you pay it.
That’s just an accounting trick, they can “destroy” whatever the current USD value would be. Whether they hold or immediately exchange the BTC is largely irrelevant.
And governments don’t necessarily need to issue the currency they use. For example, Ecuador uses the USD as their national currency. There’s nothing stopping any country from standardizing on multiple currencies either.
OK, but I can’t pay taxes with Euros in the US, does that mean Euros aren’t a valid currency?
Your country could accept cryptocurrency for your taxes, if just chooses not to. That has no bearing on whether it has value as a currency.
Not really. It would have to sell the crypto for its sovereign currency. The whole point of issuing+taxing currency is to get citizens to do favors for the government.
If you’re paying citizens for favors in USD, but accepting BTC to clear out “favors owed”, nobody has any incentive to chase USD, because any amount of BTC usage is going to dilute the value of their USD.
Unless you keep the amount of BTC you accept tied to its current market value in USD. But that’s not really “accepting” crypto, that’s just selling it on their behalf as a convenience.
The government could keep some amount of other currencies around for the purposes of things like tax refunds, and not liquidate all other currencies upon receipt. If you choose to denominate your return in Euros, you’d get your refund in Euros, and the tax authority would buy any additional Euros they need in order to process your return.
There’s no real requirement that everything be denominated in USD (or whatever your local currency is), that’s just a preference by your tax authority.
But my real point here is that whether your local tax authority accepts a given currency for payment has little to do with whether that other currency is “real.” USD are just as “real” as cryptocurrencies, they just differ in who accepts them and how money supply is managed.
It’s not just a preference. Taxation is what gives the currency value.
The government can create and destroy dollars. It spends dollars into existence, and it taxes them into nothingness.
But if it receives BTC, it can’t destroy the BTC. Same with any foreign currency.
It needs to be able to destroy the tax money after you pay it.
That’s just an accounting trick, they can “destroy” whatever the current USD value would be. Whether they hold or immediately exchange the BTC is largely irrelevant.
And governments don’t necessarily need to issue the currency they use. For example, Ecuador uses the USD as their national currency. There’s nothing stopping any country from standardizing on multiple currencies either.