‘Hard Law’ Needed to Safeguard Euro Cash

The International Mint Industry Association (IMIA) has published a position paper (2023/01 ¹) urging the European Commission (EC) to give legal certainty on the implications of the legal tender status of euro banknotes and coins in terms of mandatory acceptance and to enshrine it in secondary law.

The paper is prompted by the EC’s ‘Targeted Consultation on a Digital Euro’ which, in Section 3, discusses ‘making the digital euro available for retail use while continuing to safeguard the legal tender status of euro cash’. The IMIA summarises and explains the history of the current uncertain, legal position of euro cash, notes unique cash attributes that a digital euro will struggle to match and proposes legal certainty across the euro area.

Legislative background of euro cash

The paper describes the three key legal texts relevant to the legal tender status of the euro and the European Court of Justice (ECJ) 2021 ruling on euro cash.

Treaty on the Functioning of the European Union (TFEU)

The TFEU established the euro as the only accepted currency in the Eurozone. Former national currencies, or non-euro national currencies, were defined as not legal tender.

The TFEU did not establish a distinct or common understanding of the implication of the term legal tender for the European Single Currency. As a result, historic national definitions applied. However, not all countries had legal tender concepts laid down in statutory law but had them based on historical pre-understanding, doctrine and scarce jurisprudence.

‘At the time, cash as a means of payment and physical public money was not facing any threats in terms of acceptance, or access. Therefore, it is understandable that the TFUE writers did not feel the need to define in law the term legal tender, they would have assumed legal tender meant mandatory acceptance,’ explains Martina Horakova, Managing Director, IMIA.

Regulation (EC) 974/98 (Second Euro-regulation)

This regulation was created to manage the transition period of national currencies to the euro during the changeover period from 1 January 1999 to 31 December 2001.

Recital 19 of this regulation has subsequently been used in attempts to justify restriction on cash payments. Within the recital it says ‘…limitations on payments in notes and coins, established by member states for public reasons’ are not considered to be ‘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 normative power of the recital is questionable though, given the recital is in a regulation, which was addressing a specific currency transition and a limited time period. Furthermore, the recital is only legal guidance not norm, and its content, limitations on cash payments, does not even feature in the core text of the regulation.

EC Recommendation 2010/191/EU (Recommendation)

The recommendation is ‘soft’ law that aimed to clarify the scope and power of the legal tender status of euro banknotes and coins, providing one single regime for the single currency across the euro area and to define the powers of legal tender status from ‘the point of view of consumer protection.’ The recommendation established the concept of legal tender in EU law for banknotes and coins, implying a general obligation in principle of acceptance of euro cash by the creditor for the settlement of the monetary debt. But such an obligation is not absolute. It can be waived in accordance with the contractual freedom of the parties.

The result is that legal tender status is still not clarified at the EU level since it is up to member states and their treatment of private law. The recommendation said there should be a review three years later, in 2013, to see whether a hard law is needed. In fact, 13 years later this review is taking place driven by the discussions around the digital euro and the growing refusal to accept cash at the point of sale.

Euro Legal Tender Expert Group (ELTEG)

This group issued their final report in July 2022. Their report highlighted non-unanimity on the legal effects of legal tender status across member states.

European Court of Justice (ECJ)

In January 2021, the ECJ judged the case of Johannes Dietrich and Norbert Häring v Hessicher Rundfunk. They found in line with the 2010 Recommendation that general mandatory acceptance can be waived through free agreement of parties. Based on Recital 19, member states may adopt measures that impose limitations (or mandatory acceptance) on payments using euro cash. Such limitations cannot lead in law, or in fact, to the complete abolition of euro cash. Limitations must be established for public reasons.

IMIA view of the status of legal tender in the EU

In light of the ECJ judgement the current legal landscape is unsatisfactory. The EU should pass hard rule regulations defining the concept and term ‘legal tender’, and its implications on the obligation of point of sale service and goods providers, both private and public, to accept cash.

On a practical level, the network effect of cash cycle infrastructure means cash may be made unviable through individual and cumulative decisions made about cash acceptance and cash acceptance barriers.

The singleness of the common currency should be superior to the current diversity and positions across member states on the issue of mandatory acceptance. The IMIA believes the EU should pass hard law because it is in the public interest of the EU, the EU has exclusive competence for common monetary policy, the euro is a value anchor underpinning financial stability objectives and the EU has competence to establish competition rules for the functioning of internal markets.

Legislative action proposed

The EU should reconsider the implications and reality of contractual freedom of two parties to agree on using another payment method. For business to consumer and government to consumer transactions, accepting cash as legal tender should be obligatory.

In some jurisdictions there are already measures requiring key services to accept cash, for example pharmacies and fuel stations. The IMIA argues it is more respectful to give citizens the decision about how to pay with public money in any situation.

Exceptions to the principle of guaranteed mandatory acceptance of euro cash should only be based on the ‘good faith principle’. For example, no more than 50 coins used in any single payment, the value of banknotes tendered should be proportionate to the value of the transaction and cases where cash is not appropriate such as e-commerce. Refusal for security reasons at the point of sale and insufficient change should not be part of the ‘good faith principle’. If exceptions to mandatory acceptance are agreed, these should apply across the whole eurozone.

‘We are conscious that the potential lack of change is related to, increasingly deteriorating, access and deposit of cash conditions for retailers, as well as for consumers. Only if consumers have sufficient access to cash are they then in the position to have the notes and coins to make up the payment as close as possible to its amount. That’s why cash access and acceptance policy efforts should go hand in hand,’ Martina Horakova comments.

Implications of the Digital Euro

Both types of central bank public money, cash and a digital currency, need to be equally supported and provided with a level playing field in terms of regulatory measures.

Cash is the most used payment method despite fierce competition from digital players, no marketing supporting cash and fake news about the risks of handling cash during the pandemic. It should be given the same priority as a digital currency. In addition, cash has attributes that a digital currency does not have and would find extremely hard to replicate.

Cyber resilience for personal data security and privacy (Article 7 of the European Charter of Fundamental Rights, ‘Respect for Private and Family Life’, Article 8, ‘Protection of Personal Data – data should be processed fairly and for specified purposes and on the basis of consent or some other lawful basis.’)
Crisis resilience: national critical infrastructure resilience
Universal inclusion and cost
Value anchor and financial stability
Unlimited store of value
Tangible and physical allow self-reliant autonomy.

Final word

Whether one agrees with the IMIA or not, whether you are a European or not, this paper underlines the importance of legal clarity and the dangers that ambiguity brings.

Furthermore, the argument for a level playing field between cash and a digital currency, particularly given the proven ability of cash to deliver in key areas where digital currencies struggle, makes sense and seems reasonable and logical.

Food for thought, wherever you are and whatever your position.

1 - Clarifying the legal tender status of euro banknotes and coins – mandatory acceptance certainty at point-of-sale.