Creating a Level Playing Field

The International Mint Industry Association (IMIA) has issued a position paper on the European Commission’s (EC) draft regulations on the legal tender of euro banknotes and coins. The paper also refers to the EC’s proposals about a possible digital euro. Although supportive of the initiative, the IMIA highlights a number of concerns.

The current legal tender status of euro cash does not guarantee reliable and universal acceptance or wide and easy access. One result of this is that the European cash infrastructure is being eroded. As a result, the IMIA agrees that clarification is needed.

Cash today has already achieved what a digital euro will need to achieve if it is to act as complementary digital central

bank money. Cash is a trusted and known payment product, widely adopted for transactions and, unlike the digital euro, can be used as a store of value. It is exchangeable on a one-to-one basis with commercial bank money, thereby fulfilling that value anchor role that delivers financial stability and resilient payments.

The EC proposals do not offer a consistent approach and level playing field for cash and digital payments across regulations, enforcement and institutional support. This brings a risk of the EC being seen, as well as in fact, to encourage a digital euro to crowd out and replace cash.

Cash almost effortlessly gives individuals financial autonomy and privacy, protecting personal data. Direct payment can be made without the need for any service from a third party. It offers universal inclusivity and an unlimited store of value which allows people independence, autonomy, agency and freedom.

Legal tender status: digital euro

‘Ex ante exclusion of cash’, ie. the unilateral refusal to accept payments in cash without a bilaterally and individually negotiated agreement such as a ‘no cash’ sign on a shop, is not forbidden in the cash proposal. But it is in the digital euro proposal.

The only exclusions for a digital euro are for payments to micro enterprises and private citizens. Otherwise, the unilateral exclusion of digital euro payments will be prohibited outright across the euro zone and non- acceptance will be penalised. ¹ 

Acceptance of cash

Member states are obliged to intervene with remedial measures when a level of non-acceptance of payments in cash undermine the principle of mandatory acceptance. This implies that the universal exclusion of payments in cash are not prohibited as long as the refusal of cash is not ‘widespread and structural.’

Member states must monitor the extent of ‘no cash’ policies and use regulatory measures if they are too widespread. The cash proposal is silent on whether it includes cash payments at the point of sale, person to government, person to local government, person to government funded institution or temporary point of sale locations such as festivals.

In contrast, Recital 4 in the digital euro proposal is explicit, stating that ‘the digital euro should support a variety of use cases of retail payments. Those use cases include person to person, person to business, person to government, business to person, business to business, business to government, government to person, government to business, and government to government payments.’ 

Currently the monitoring of cash acceptance lacks frequency and systemic pro-active data gathering. The IMIA recommends that the EC requires investment in raising public awareness about both the right to pay in cash at point of sale and how to complain if there is a problem. The IMIA would like vending machines and self-service check out tills to be included in this. It also suggests authorities utilise mystery shopping as supervisory tool to establish what is really happening.

The proposal says that the level of acceptance will be measured and assessed against ‘common indicators’ to be defined by the EC, but can a member state take action if the level is above that indicator? What is to stop the common indicator becoming an acceptable minimum?

Recital 6 also refers to a series of indicators, without clarification. Does this mean that there will be different levels for different sectors? This could have an impact on payment choice and privacy. On what basis will the EC decide where to set the level?

Access to cash

While the IMIA welcomes the EC’s proposals on access, it draws attention to a number of areas. Access to cash should be ‘sufficient’ and ‘effective’. It does not mention ‘convenient’. In contrast the digital euro text says access to it should be ‘universal, affordable and easy’.

Should an access to cash common indicator be, for example, as saying citizens should live within 3 km of an ATM. While this may be a ten minute drive in a car, what happens when a citizen does not have a car? Is 3 km still regarded as convenient and easy?

Again, will the indicator become a minimum standard? Will member states be able to require the distance travelled to reach an ATM to be less? The IMIA argues that the monopoly bestowed on financial institutions to create commercial money place on them an obligation to maintain the ability of account holders to deposit and access cash.

The monitoring proposed is suggested as being annual. There is a real risk that this frequency is too long, and reporting will not happen in sufficient time to prevent the dismantling of euro cash infrastructure.

Final word

While the IMIA agrees that the current legal tender status of cash does not guarantee acceptance of or access to cash, and that the legal tender status of a digital euro must be clarified, it is concerned by the inconsistencies in treatment of these two versions of central bank money, wish cash being discriminated against.

Cash is a wonderfully successful payment instrument established over centuries. It needs safeguarding both in its own right and to ensure that while a digital euro builds the trust of citizens, fully functioning choice is maintained. Cash needs equal support for it to be an easy and convenient public money choice for citizens as that being proposed for a digital euro.

1 - Recital 11, ‘to ensure the effective protection of the legal tender status of the digital euro as a single currency throughout the euro area, and the acceptance of payments in digital euro, rules on sanctions for infringements should be introduced and applied in the Member States.’