After Leipzig: The Far-Reaching Impact of the Hessischer Rundfunk Case

In late April the Bundesverwaltungs-gericht (BVerwG), Germany’s federal administrative court, held another hearing and pronounced its judgment in the legal challenge against the Hessischer Rundfunk, a German public broadcaster, for its refusal to accept payments for an obligatory fee in euro cash. The detailed text of the BVerwG ruling, with the court’s deliberation, was made public in August.

The BVerwG was asked to rule on whether the German public broadcaster’s refusal of cash to settle obligatory payment was a violation of the status of euro banknotes and coins as legal tender. The absence of clear definition at the Eurozone level on the scope and effectiveness of the term ‘legal tender’ of cash led the German court when asked to rule in the Joined Cases C-422/18 and C-423/10, Dietrich and Häring v Hessischer Rundfunk, to refer for preliminary ruling to the European Court of Justice (ECJ).

The BVerwG considered the prohibition of payment in cash for the radio and television licence fee to be contrary to German law, namely the second sentence of Paragraph 14(1) of the BBankG Bundesbank Act (BBankG). This German legal act, in the interpretation of the BVerwG, explicitly defines euro banknotes as ‘the sole unrestricted legal means of payment’ ¹, which differs from Article 128, Paragraph 1 of the Treaty on the Functioning of the European Union (TFEU), which only states that: ‘The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union.’ 

In other words, the BVerwG was uncertain whether the TFEU also implied absolute mandatory acceptance of cash payments and whether the Bundesbank Act itself doesn’t infringe in this regard the EU’s exclusive competence in the area of monetary policy, given that ‘the content of the term ‘monetary policy’ […] and thus the scope of the exclusive competence enjoyed by the European Union has not yet been conclusively clarified’. Hence it was for the ECJ to make it clear.

The BVerwG therefore asked the ECJ whether the Bundesbank Act is compatible with the EU’s exclusive competence for monetary policy; whether EU law itself actually contains a prohibition precluding public authorities of a member state from refusing the fulfilment, by means of euro banknotes, of a statutorily imposed payment obligation, which would mean that the rules of Hessischer Rundfunk are incompatible with EU law.

Furthermore, should the ECJ rule that status of legal tender of euro banknotes falls under the EU’s exclusive competency for monetary policy, the German court then also sought ECJ’s view on what the status of legal tender actually entails, concretely if it requires for statutorily imposed payment obligations to be accepted in cash.

And if, as a consequence of the legal tender status of euro banknotes, member states’ public authorities have to accept euro banknotes as a discharge of mandatory payment obligations, can a Eurozone member state nevertheless apply national law as long as the EU has not made use of its transferred competence.

The ECJ’s preliminary ruling for the BVerwG in January 2021 stated that the Hessischer Rundfunk regulation excluding the possibility of paying the statutorily fee obligation in euro cash is feasible as long as all following criteria are tested and met:

i. That legislation does not have the object or effect of establishing legal rules governing the status of legal tender of such banknotes; 

ii. that it does not lead, in law or in fact, to abolition of those banknotes, in particular by calling into question the possibility, as a general rule, of discharging a payment obligation in cash; 

iii. that it has been adopted for reasons of public interest;

iv. that the limitation on payments in cash which the legislation entails is appropriate for attaining the public interest objective pursued; and 

v. that it does not go beyond what is necessary in order to achieve that objective, in that other lawful means of discharging the payment obligation are available.’

The BVerwG held another hearing at the end of April 2022 to examine these conditions. It found that the Rundfunk legislation wasn’t establishing any legal tender rule and that it also didn’t lead to in law or in fact to the abolition of banknotes.

Whether the legislation isn’t de facto or in long-term effect leading to abolishing cash, should other governmental and semi-public administration adopt same non-cash acceptance rules, is debateable. Though, in isolation, one public institution refusing cash payments will per se not lead to abolition of cash or national ban on payments in cash.

However, should other public or semi-public institutions adopt, based on the BVerwG judgement, similar cash payments-banning legislations, this ruling could in fact and effect significantly undermine the general rule of cash acceptance.

The BVerwG did not take this into consideration, which leads to the question whether courts are the place for determining the scope of legal tender with its implications on network effects in cash payments and access to central bank money. Or whether this highlights the need for the European Commission to step in and provide new legislation on the scope and effect of legal tender for cash.

Cost (and benefits?) of cash payments

The BVerwG further found that the mass collection of the licence fees and the cost as portrayed by the Rundfunk justified non-acceptance of cash payments. However, the Rundfunk did not present and wasn’t asked to present any proof of disproportionality of cost due to cash payments acceptance.

The ECJ provided the following guidance to the BVerwG for its deliberations that it was ‘indeed in the public interest that monetary debts to public authorities may be honoured in a way that does not involve those authorities in unreasonable expense which would prevent them from providing services cost-effectively. It must therefore be held that the public interest reason relating to the need to ensure the fulfilment of a statutorily imposed payment obligation is capable of justifying a limitation on cash payments, in particular where the number of licence fee payers from whom the debt has to be recovered is very high.’ 

What the ECJ did not advise on is how to determine what constitutes ‘unreasonable expense which would prevent them from providing services cost-effectively’.

The ECJ even offered the BVerwG its own view that ‘the limitation at issue in the main proceedings appears to be both appropriate and necessary in order to achieve the objective of actually recovering the radio and television licence fee, in that it enables the administration to avoid having to bear an unreasonable financial burden given the cost that would be involved in the widespread establishment of a procedure that allows licence fee payers to pay the radio and television licence fee in cash.’ Here, again, the ECJ abstained from elaborating in any way on how and who should define what constitutes unreasonable financial burden, for instance in relation to what other expenses amount as well as part of cost and benefit analysis.

Without defining any burden of proof procedure in this regard, any financial burden and any expense could be claimed to be unreasonable and restrictions on cash payments justified due to any cost as such. As Prof Helmut Siekmann in his paper ‘Legal Tender in the Euro Area’ puts it: ‘When restrictions are advocated, the benefits of using cash are habitually ignored. Such a constrained perspective does, however, not satisfy the requirements of an in-depth examination of the principle of proportionality […] [and] an adequate scrutiny has to balance costs and benefits. […] Balancing costs and benefits of restricting the use of cash will regularly lead to the assessment that the measure is disproportionate and hence unconstitutional.’² 

A question in this regard arises as to what the risks and costs to public interest are by exposing governmental and semi-governmental institutions payment infrastructure to climate change and cyber war risks and outages, without resilient cash payments infrastructure in place. In such circumstances, it might be both appropriate and necessary to accept cash payments in order to achieve the objective of actually recovering fees and taxes.

Financial Inclusion

The BVerwG ruled, however, that the Hessischer Rundfunk legislation was incompatible with basic constitutional right for equal treatment of German citizens, by discriminating against those who ‘were not able to open a bank account.’ In other words, those citizens who would choose not to open and pay for a bank account are not included.

The BVerwG said that the Hessischer Rundfunk by-law can nevertheless remain in force for a transitory period until the broadcaster issues a new by-law, which does not exempt cash payments for unbanked citizens. In the meantime, and afterwards, those fee-payers who would like to pay their statutory obligation in cash have to prove that they were unable to open a bank account with a public or private credit institute.

The German Federal Administrative Court put the burden of proof to provide sufficient evidence for inability to open a bank account on the Rundfunk fee payers. Furthermore, the BVerwG did not clarify or provide any guidance on what actually constitutes a ‘sufficient’ proof.

For example, is it expected that citizens need to show that they tried to apply and failed to open a bank account at two or ten number of banks? What ‘legitimate’ obstacles to opening a bank account will be accepted as proof – would it only be accepted if the citizens show that they couldn’t open a bank account due to lack of needed documents/proofs of ID, or will lack of funds to open a bank account also be accepted? Would citizens need to justify that they don’t have sufficient funds for opening a bank account and/or are unwilling to open one due to perceived risk of inability to pay potential future bank fees cost? Would they need to disclose to the Rundfunk details of their monthly income and budget?

The hearing in Leipzig addressed the question of whether a public or semi- public authority should be in a position to demand consumers/citizens pay via traceable payment methods. The plaintiff and his lawyer argued that though in the case discussed the radio station did hold personal information of the client, by paying his fee digitally, Haering was also disclosing his information to other third- party providers in the payments chain.

The BVerwG didn’t take this third-party provision and or hackability of electronic payments infrastructure into account. Moreover, the court judged that information reading his fee payment and his residential address are known to his bank as well as to the Hessischer Rundfunk and therefore this data does not call for any protection measures.

The question of whether the state or semi- governmental institutions have the right to oblige citizens to pay via commercial electronic payment methods needs to be assessed in terms of whether the state has the right to ask citizens to limit their right to privacy and also economic choice freedoms, by in effect asking citizens to enter into commercial contracts with banking and payments providers on request of the state.

In other words, it is a different matter if citizens decide to pay electronically based on their own freedom of choice or whether they are instructed by the state.

Mandatory acceptance still unclear

In regards to limitations on payments in cash, the ECJ in its elaborations and judgment referred to ‘Recital 19’ of Regulation No 974/ which states that ‘whereas banknotes and coins denominated in the national currency units lose their status of legal tender at the latest six months after the end of the transitional period; whereas limitations on payments in notes and coins, established by Member States for public reasons, are not incompatible with the status of legal tender of euro banknotes and coins, provided that other lawful means for the settlement of monetary debts are available’.’ The Court argued that ‘even though the preamble to an EU act has no binding legal force […] it may explain their content.’ 

The Court then elaborated that the wording ‘public reasons’ should be understood in its far reaching scope as ‘reasons of public interest’ rather than ‘reasons of public policy’, noting that: ‘Since the limitations on payments in notes and coins denominated in euro may, in practice, be justified just as much on grounds of public policy relating to security or the fight against crime as by the public interest in ensuring the efficient organisation of payments in society, it is necessary, for the purpose of ensuring the uniform application of grounds for exception in all the member states, to adopt the broader expression, ‘reasons of public interest’.’ 

It was on the grounds of applying this broader expression that the Court then found that it is therefore justifiable for cash restrictions to be imposed for public administration organisation and reasons: ‘European Union’s exclusive competence in matters of monetary policy […] does not prevent a member state, in the exercise of its own powers, such as the organisation of its public administration, from adopting a measure which obliges that administration to accept cash payments from citizens or, as envisaged in the context of the second question, which introduces, on public interest grounds, a derogation from that obligation for statutorily imposed payments.’

The ECJ further declared that that status as legal tender calls only for acceptance in principle of banknotes denominated in euro as a means of payment, not for absolute acceptance. Nor, moreover, is it necessary for the use of the euro as the single currency and, more specifically, for the preservation of the effectiveness as legal tender of cash denominated in euro that the EU legislature lay down exhaustively and uniformly the exceptions to that fundamental obligation, provided that every debtor is guaranteed to have the possibility, as a general rule, of discharging a payment obligation in cash.

However, the ECJ also ruled that a euro area member state can oblige its administration to accept payments in cash: ‘It does not, however, preclude a member state from adopting, in the exercise of a competence that is the member state’s own, such as the organisation of its public administration, a provision which requires that administration to accept payment in cash for the pecuniary obligations imposed by the administration.’ 

Member states can equally authorise public administrations not to accept cash payments; however, only of the five conditions given by the ECJ apply.

Recommendation 2010 – is there a need for legislation at the European level?

The ECJ heavily relied in its judgment on Commission Recommendation of 22 March 2010 on the scope and effects of legal tender of euro banknotes and coins, to come to the conclusion that the status of legal tender implies that a means of payment having legal tender involves a default obligation to accept it at full face value in payments and a corresponding default right to pay with it, unless that obligation and right are restricted for reasons of public interest, or waived by contractual agreement.

It is this exemption and interpretation of it in regard to mandatory acceptance, that grants that the creditor of a payment obligation cannot refuse euro banknotes and coins unless the parties have agreed on other means of payment, that is understood and applied in no-coherent way across the eurozone. As can be seen in the final Euro Legal Tender Expert Group (ELTEG) report, there is still a lack of agreement on whether a sign saying ‘no cash accepted’ is de facto a somewhat contractual and fair agreement process or a cash restriction autonomously imposed by the creditor.

Recommendations, such as Commission Recommendation 2010/191/EU, are not intended to produce binding effects. However, the ECJ argues, they can be taken into consideration where they provide useful guidance for the interpretation of the relevant provisions of EU law.

Furthermore, given that ‘there are no provisions at all in primary and secondary EU-law providing for a definition of the term ‘legal tender’ in general’ ³, it is understandable for the ECJ to scratch for some insights.

What, however, is fascinating is the emergence of some sort of self-fulfilling self-referential circle that still provides no clarity on the scope of the status of legal tender of cash in regard to its mandatory acceptance.

The Commission has tried to rectify the lack of legal clarity around legal tender status ‘by means of mere recommendations’ ⁴ but did not embark on clarifying via legislative acts. The Recommendation was based on report of ELTEG that highlighted non-anonymous agreement of the legal effects of legal tender status. ‘Despite the intention of the group to reach a common understanding of the term ‘legal tender’ there was no unity among member states on the question of whether the EU has already defined the term legal tender in an autonomous manner.’ 

Interestingly, the German court also wasn’t sure how much importance it could attach to the Commission Recommendation (2010/191/EU) of 22 March 2010 on the scope and effects of legal tender status of euro banknotes and coins (Recommendation) in its search for status of legal tender clarification, given that accord to Article 288 of TFEU recommendations have no binding force.

Furthermore, even if taken into account, the German court found the Recommendation was ‘unclear’ as it does not mention any other exceptions to ‘mandatory acceptance’, which it prescribes, apart from reasons related to the ‘good faith principle’, and in particular makes no mention of exceptions for statutorily imposed payment obligations.

Specifically, the German court found that ‘the legislative history of Commission Recommendation (2010/191/EU) of 22 March 2010 showed that there was an intention to avoid the adoption of a formal legal act.’ The referring court points out that the ‘Report of the Euro Legal Tender Expert Group (ELTEG), on which the main conclusions of the Recommendation are based, ‘stated that there is disagreement as to whether the European Union enjoys exclusive competence – which it has not yet exercised – to establish a common definition of legal tender and the resulting effects, or whether the national legislatures have legislative competence in that regard. For this reason, the Report does not recommend the adoption of legally binding rules, such as by amending Regulation (EC) No 974/98, but merely suggests the issuance of a Commission recommendation as a ‘soft law’ approach.

Moreover, the BVerwG thought that attaching decisive importance to the Recommendation for the interpretation of the term ‘legal tender’ was not advisable given that the Commission, to announce in recital 5 of the Recommendation, stated that it planned to review the implementation of that Recommendation three years after its adoption, and to assess whether regulatory measures are necessary.

Guaranteeing access and acceptance of public money

This Recommendation then impacted the ECJ jurisprudence ruling and judgment. To which the Commission as well as ELTEG refer to when considering legislative proposal for the scope and impact of legal tender:

‘The baseline of any legislative proposal would be the codification of the CJEU ruling of 26 January 2021 on the key principles of legal tender: mandatory acceptance in principle, at full face value, with the power to discharge payment obligations, without prejudice to the competence of member states whose currency is the euro to regulate the procedures for settling pecuniary obligations, whether under public law or private law. However, more detailed rules could be considered to ensure added- value and legal certainty whilst respecting the Court of Justice jurisprudence. […] Definition of legal tender status, at any rate for banknotes, must respect the definition given by the CJEU in its case law (Joined Cases C-422/18 and C-423/10, Dietrich and Häring v Hessischer Rundfunk, judgment of 26 January 2021).’ ⁵ 

The European Commission in its Targeted Consultation on a Digital Euro ⁶ states that ‘while promoting the emergence of digital payments to offer more options to consumers, the Commission will continue to safeguard the legal tender of euro cash’ and is currently considering whether ‘the current situation where the legal definition of the legal tender status of cash is set out in the 2010 Recommendation and ECJ jurisprudence is adequate’ or whether ‘legislative action at EU level is needed to enhance legal certainty and enshrine the legal tender status of euro cash in secondary law’.

This approach is welcomed; the Commission seems to be aware that while disproportionately promoting digital payments in order to provide more payment options to consumers, inaction in maintaining and promoting sufficient, resilient and sustainable access and acceptance of cash might not only remove a payment option for the public, but furthermore diminish the relevance of public money.

The difficulty of ‘safeguarding’ the legal tender status of cash lies in large part in the uncertainty of what the legal effects and implications of the legal tender status actually are. In particular, whether the legal tender status of euro cash means absolute mandatory acceptance of cash payments or if and what type of exceptions to the obligation are legally and effectively granted.

The Commission highlights that the legal tender of euro banknotes is enshrined in Article 128 TFEU. However, how the term legal tender as used in the TFEU, as well as in secondary monetary legislation, is to be interpreted in an autonomous self- explanatory manner is far from obvious ⁷.

As Robert Freitag argues: ‘[The legal tender] status of the euro seems to be so evident as to be self-explanatory – but only at first glance since the concept of ‘legal tender’ and its implications in the European Union (EU) and national private and public law are less clear.[…] Currency regulations on the euro as legal tender are mostly limited to technical aspects, namely to questions regarding the competence of the ECB and the NCBs when issuing euro-denominated banknotes and coins and to the physical criteria to be met by legal tender.’

‘In contrast, secondary law does not define the fundamental implications of the single currency as a means of payment. These issues only are dealt with in the non-binding ‘recommendation’ of the Commission from 2010 which itself is based on the merely declaratory findings of an inter-institutional working group including national and European experts [Euro Legal Tender Expert Group (ELTEG)].’

It can be observed that this vacuum of no harmonised, clear and practical definition of the term legal tender in regard to mandatory acceptance in primary and secondary EU-law has allowed for restrictions on the use of cash, from businesses rejecting cash payments to government entities refusing to disburse funds in cash or accept taxes and fees in cash payments. In effect, this prevents citizens from using central bank money.

This lack of clarity has led restrictions on cash payments to take hold without any control, and the question is whether legislators and policymakers need to backtrack. In that sense, safeguarding the legal tender status of cash is about preserving central bank money as widely and reliably accessible and accepted means of payment and store of value.

The final report of ELTEG, published in July this year, following the publication of the Commission’s consultation on the digital euro, also stresses the need for a uniform approach to central bank money: ‘In parallel with a possible legislative initiative explicitly granting legal tender to the digital euro, ELTEG considers that the Commission should also consider regulating the legal tender status of euro cash. It would seem incoherent in policy terms to define in EU legislation the legal tender for the digital euro, while a parallel definition is not provided for euro cash.’ ⁸ 

Martina Horáková is an independent central banking and regulatory specialist with over 15 years of experience in research, publishing, event content production and knowledge management. She previously worked for a decade at Central Banking, before founding her own consulting and content company, where her focus includes coverage of cash, digital payments and central bank digital currency.

1 - “Auf Euro lautende Banknoten sind das einzige unbeschränkte gesetzliche Zahlungsmittel.”Gesetz über die Deutsche Bundesbank. www.bundesbank.de/resource/blob/598136/dcaaa3edf096b057757746ac446dd311/mL/gesetz-ueber-die-deutsche-bundesbank-data.pdf 

2 - Helmut Siekmann (2018), Legal tender in the euro area, No 122, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS) www.imfs-frankfurt.de/fileadmin/user_upload/IMFS_WP_122.pdf

 3 - Robert Freitag, The Euro as Legal Tender (and Banknotes), in: Amtenbrink/C. Herrmann (eds.), Handbook on the European Monetary Union, Oxford University Press, 2020, chapter 21 (pp. 595-614) 

4 - Robert Freitag, The Euro as Legal Tender (and Banknotes), in: Amtenbrink/C. Herrmann (eds.), Handbook on the European Monetary Union, Oxford University Press, 2020, chapter 21 (pp. 595-614) 

5 - Final ELTEG report of 6 July 2022 https://ec.europa.eu/transparency/expert-groups-register/core/api/front/document/85940/download

6 - European Commission (2022), Targeted consultation on a digital euro https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2022-digital-euro-consultation-document_en.pdf

7 - “An autonomous interpretation of Article 128 TFEU might as well result in the finding that the term ‘legal tender’ is devoid of any common understanding on the EU level, and that Article 128 TFEU and the 2nd Euro regulation refer to the pre-existing understanding found in each Member State of the euro area.” – Robert Freitag, The Euro as Legal Tender (and Banknotes) 

8 - LTEG Final Report https://ec.europa.eu/transparency/expert-groups-register/core/api/front/document/85940/download