Digital Currencies: A Conceptual Framework for Its Regulation & Feasibility as Legal Tender

Abstract

Digital currencies have emerged as a revolutionary technology, posing a new and complex set of challenges to policymakers and regulators around the world. As the uptake of digital currencies continues to grow in Kenya, so do the risks associated with this new form of money. This study provides a comprehensive legal and theoretical framework for analyzing the regulation and feasibility of digital currencies as legal tender. Drawing on legal and economic theories, the study examines the potential benefits and drawbacks of digital currencies, their current legal and regulatory landscape, their taxation and their compatibility with existing payment systems and monetary policy frameworks. The study also presents case studies of countries that have adopted digital currencies as legal tender, and identifies the main challenges and opportunities facing their adoption and regulation. Additionally, the study undertakes an empirical assessment of the tax potential of capital gains from cryptocurrencies and an analysis of present taxation procedures in place, to provide a holistic understanding of the legal issues around digital currencies. The study’s contribution lies in its theoretical and empirical analysis, and in its policy recommendations for the regulation of digital currencies as legal tender. Overall, the study highlights the need for a nuanced and context-specific approach to the regulation of digital currencies, and for a deeper understanding of their potential implications for monetary policy, financial stability, and consumer protection. This study embraces majorly a qualitative research methodology. It is reliant on statutes, case laws, books, journals and internet resources to provide information for the study.

Keywords: Digital Currencies, Central Bank digital currency; CBDC, Blockchain, Cryptocurrencies, Cryptoassets, Virtual currencies, tax haven, legal tender, regulation