The concept of legal tender should be abolished and private money should enjoy a level playing field that enables the likes of bitcoin to compete with state-backed currencies, a new think tank report suggests.
Regulators around the world have been scrambling to respond to the wave of new crypto-currencies, led by bitcoin, that have been gaining traction over the last couple of years.
In a paper for the free market Institute of Economic Affairs, Kevin Dowd, a professor of finance and economics at Durham University, argues that there is strong demand for alternative currencies, fuelled by mounting restrictions of financial freedoms.
People are increasingly frustrated by state-controlled money thanks to a weakened ability to store value, growing restrictions on finance, oppressive taxes and a lack of privacy, says Dowd.
This disillusionment will lead to a tidal wave of new private monies, he predicts, with bitcoin eventually displaced by better options. But for them to prosper, governments must stop stifling competition, instead welcoming rivals that will force their own currencies to improve.
According to the report "governments should consider eliminating any and all regulatory or legal obstacles to the use of private monies".
Several countries - including the US and Germany - have declared that bitcoin is not a currency but property for tax purposes. Dowd says that this is wrong and that any transactions in a private money should not be put at a tax disadvantage relative to official currencies.
The report also calls for the end of the US's prohibition against the private issue of coins and for courts to be required to enforce contracts made in private currencies.
The level playing field implies the abolition of legal tender because parties to contracts would no longer be compelled to accept a currency they do not want to. Also implied is that governments themselves would have to accept private money in tax payments, if they become "well established".
"Above all, we need to move away from the medieval attitude that the issue of any form of money is a state prerogative," concludes Dowd.
Mark Littlewood, director general, Institute of Economic Affairs, adds: "Bitcoin has proved widely successful as an alternative form of exchange and as way of restoring financial freedom. It is just the beginning however. Fierce demand for private money will drive innovation, creating a tidal wave of new and superior forms of exchange."