Don't Freakout about the Proposed Amendments to the Uniform Commercial Code

Scary fear-mongering image used by Tennessee Stands to
generate opposition to updating the Uniform Commercial Code

by Rod Williams, April 7, 2024- Tennessee Stands, the rightwing organization headed by Gary Huble, is raising alarm about proposed amendments to the Uniform Commercial Code. The organization has already convinced 15,000 people to take action urging their lawmakers to vote against the bill adopting the amendments. I doubt that very few of the people motivated by Tennessee Stands to take action know what they are talking about. 

The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law, but a uniformly adopted state law. As the Uniform Law Commission (ULC) explains, uniformity of law governing commercial transaction is essential for the interstate transaction of business. Because the UCC has been universally adopted, businesses can enter into contracts with confidence that the terms will be enforced in the same way by the courts of every American jurisdiction. The resulting certainty of business relationships allows businesses to grow and the American economy to thrive. For this reason, the UCC has been called “the backbone of American commerce.” (1)

The ULC was established in 1892 and has been working to harmonize state laws governing commercial transactions since then. Usually, the work of the ULC is not controversial. ULC is a private organization that develops the UCC and then each state may adopt the code. The code was first published in 1952 and forty-nine of the states have adopted it.   The UCC is from time to time amended to reflect innovations in commercial transactions. When it is amended then the amendments are submitted to the states for adoption. Usually this is routine.

A recently proposed update of the UCC has proven controversial. The attempt to modernize the UCC is in response to the impact of new technologies on commercial transactions over recent years including digital assets, cryptocurrencies, and NFTs. The proposed amendments in short redefines money. This was in response to El Salvadore and Central African Republic adopting Bitcoin as legal tender. As CATO explains, "Because Bitcoin is legal tender in those countries, it should be considered money within the current version of the UCC since it is a “medium of exchange…authorized or adopted by a…foreign government.”

This is a problem. "If Bitcoin is money within the UCC, then it changes how someone would go through the necessary legal steps to secure an enforceable legal claim on Bitcoin as collateral for a loan. Likewise, it changes how jurisdiction is determined, as the location of the money in question is where the UCC assigns jurisdiction. Before Bitcoin became legal tender and thus money within the UCC, the jurisdiction would simply have been wherever the debtor in question was located." (2) This gets complicated, and some argue that this is a good thing for Bitcoin. To dig deeper into this, see the CATO article. 

Some view the redefinition of money as paving the way for Central Bank Digital Currencies (CBDC). There very well may be privacy concerns with CBDC's. However, as CATO concludes, "while the risks posed by CBDCs should not be understated, this change to the UCC does not appear to be the Trojan Horse that it appears to be at first glance."

For more on this issue see, Why Ron DeSantis and Others Are Wrong on UCC's Role in Crypto and CBDCs - Barron's (barrons.com) To read the bill and the legislative analysis see, Tennessee General Assembly Legislation (tn.gov)

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