Parliament should formally legalize cryptocurrency as “money”

By Chetan Phull May 25, 201825 May 2018

Parliament should formally legalize cryptocurrency as “money”

 

Cryptocurrency can arguably exist as a commodity and security, and be a medium of exchange on this basis. However, legally speaking, cryptocurrency cannot be “money” in commercial dealings.

The reason is twofold. First, any contract involving the payment of “money” must be denominated in fiat currency under the Currency Act. Second, cryptocurrency has not yet achieved fiat status in Canada or any other country.

The legality of cryptocurrency contracts under Canadian law is therefore challenged by the view that cryptocurrency is in fact “money”.

There are grounds to support the view that cryptocurrency is “money”, starting with the 1899 English decision in Moss v. Hancock. The court defined “money as currency” as:

that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities.

In 1938, the Supreme Court of Canada decided the leading Canadian case on the definition of “money” in Reference Re Alberta Statutes:

[M]oney as commonly understood is not necessarily legal tender. Any medium which by practice fulfils the function of money and which everybody will accept in payment of a debt is money in the ordinary sense of the words even although it may not be legal tender….

More recently, the Federal Court effectively overturned the result in Moss v. Hancock in a decision from earlier this year, Hociung v. Canada. Moreover, the quote from Reference Re Alberta Statutes was no more than obiter dicta.

However, U.S. jurisprudence appears to be quickly moving towards recognizing cryptocurrency as “money”, albeit mostly in the context of securities and anti-money laundering legislation.

If these U.S. cases serve as persuasive authority that cryptocurrency is in fact “money” in the Canadian commercial context, cryptocurrency contracts under Canadian law will be invalid under the Currency Act.

It is only a matter of time until cryptocurrency becomes a common medium of exchange in commerce. The law will need to adapt.

That is why we are overdue for an update to the statutory definition of “money”. More than 30 years ago, lawyer Guy David wrote in his 1986 article, “Money in Canadian Law”, about challenges the courts will face regarding “the legal characterization of money”:

[The preferred definition] is to equate money with any medium, tangible or intangible, specifically adopted as a means of effecting payments. … [This] would imply a conceptual flexibility better suited to accommodate changing customs and advances in technology.

David’s proposal would certainly clarify that cryptocurrency is “money”. However, it is ironic that his good intentions would likely result in every cryptocurrency contract becoming void under Canadian law, on the basis of the Currency Act.

The power to declare that cryptocurrency can be “money” in commerce lies exclusively with Parliament. It has exclusive jurisdiction to legislate over matters of banking, currency, bills of exchange, and other related areas.

Parliament should amend the Currency Act to formally legalize, and duly permit the enforcement of, cryptocurrency contracts that treat cryptocurrency as “money”.

Chetan Phull is a Blockchain & IT Lawyer, and the Founder of Smartblock Law Professional Corporation. A more fulsome version of this article appears in the Smartblock Law Blog.

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