European Commission Proposes to Regulate on Mandatory Acceptance of Cash

Across the euroThe name of the European single currency adopted by the European Council at the meeting held in Madrid on 15-16 December 1995. See ECU. More area and beyond, for more than two decades, people and businesses have been accustomed to paying with euro coins and banknotes. 60% of people surveyed would like to continue to have the option to use cashMoney in physical form such as banknotes and coins. More.

The Commission has proposed two mutually supportive sets of measures to ensure that people have both paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More options, cash and digital, when they want to pay with central bank moneyA liability of a central bank, including banknotes in circulation and banks’ deposits with the central bank. More:

• A legislative proposal on the legal tenderMoney that is legally valid for the payment of debts and must be accepted for that purpose when offered. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered (“tendered”) in payment of a debt extinguishes the debt. There is no obligation on the creditor to accept the tendered payment, but the act of tendering the payment in legal tender discharges the debt. More of euro cash to safeguard the role of cash, ensure it is widely accepted as a means of payment and remains easily accessible for people and businesses across the euro area.
• A legislative proposal establishes the legal framework for a digital euro to complement euro banknotes and coins. It would ensure that people and businesses have an additional choice – on top of current private options – that allows them to pay digitally with a widely accepted, cheap, secure and resilient form of public moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More in the euro area (complementing the current private solutions). While today’s proposal – once adopted by the European Parliament and Council – would establish the legal framework for the digital euro, it will ultimately be for the European Central Bank to decide if and when to issue the digital euro.

Legal Tender of Euro Banknotes and Coins

Euro cash is ‘legal tender’ in the euro area. This proposal aims to set out in legislation what that means, focusing on two ‘A’s: acceptance and access. Although acceptance of cash is high on average across the euro area, issues have emerged in some Member States and sectors. Meanwhile, some people have difficulties accessing cash, for example, due to the closures of ATMs and bank branches.

The concept of legal tender, until now,  is only found in the Commission Recommendation of 22 March 2010 on the scope and effects of the legal tender of euro banknotes and coins. Although EU law directly attributes the status of legal tender to euro banknotes and coins, neither primary nor secondary EU law defines the concept of legal tender. In its judgment on the legal tender cases, the Court of Justice held that the concept of ‘legal tender’ of euro banknotes enshrined in Article 128(1) of the Treaty of the Functioning of the European Union is a concept of Union law that must be given an autonomous and uniform interpretation throughout the European Union. The idea of legal tender, as interpreted by the Court of Justice for euro banknotes, implies: (i) mandatory acceptance, (ii) at total face valueThe figure or amount written on the banknote or coin which indicates the amount of its economic value. It is usually written in letters and numbers. More and (iii) with the effect of discharging payment obligations, as set out by Point 1 of the 2010 Commission Recommendation.

Article 4 of the proposed regulation  defines the legal tender of cash as entailing mandatory acceptance, at full face value, with the power to discharge from a payment obligation. A payee shall not refuse euro cash tendered in payment unless the parties have agreed on a different means of payment or an exception applies.

The proposal aims to safeguard the continued widespread acceptance of cash throughout the euro area. It will also ensure that people have sufficient access to cash to pay in cash if they so wish.

Member States must ensure widespread acceptance of cash payments and sufficient access to cash. They will need to monitor and report on the situation and take measures to address any problems identified. The Commission could step in to specify actions if required.

The proposal will ensure everyone in the euro area can choose their preferred payment methodSee Payment instrument. More and access essential cash services. It will provide the financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More of vulnerable groups, such as older people, who rely more on cash payments.

A Digital Euro as a Complement to Cash

To adjust to the increasing digitalisation of the economy, the European Central Bank (ECB) – like many other central banks worldwide – is investigating the possibility of introducing a digital euro as a complement to cash. The digital euro would give consumers an alternative European-wide payment solution in addition to today’s options. This means more consumer choices and a more robust international role for the euro.

Like cash today, the digital euro would be available alongside existing national and international private means of payment, such as cards or applications. It would work like a digital wallet. People and businesses could pay with the digital euro anytime and anywhere in the euro area.

Significantly, it would be available for online and offline payments, i.e., payments could be made from device to device without an internet connection, from a remote area or underground car park. While online transactions would offer the same level of data privacy as existing digital means of payments, offline payments would ensure a high degree of privacy and data protection for users: they would allow users to make digital payments while disclosing less personal data than they do today when making card payments, just like when paying with cash, and the same as what they tell when they take cash out of an ATM. Nobody would be able to see what people are paying for when using the digital euro offline.

Banks and other payment service providers across the EU would distribute the digital euro to people and businesses. Essential digital euro services would be provided free of charge to individuals. To foster financial inclusion, individuals who do not have a bank account would be able to open and hold an account with a post office or another public entity, such as a local authority. It would also be easy to use, including for persons with disabilities.

Merchants across the euro area would be required to accept the digital euro, except tiny merchants who choose not to accept digital payments (as the cost to set up new infrastructure to accept payments in digital euro would be disproportionate).

The digital euro could also be a solid basis for further innovation, allowing banks to provide innovative solutions to their clients.

The wide availability and use of digital central bank money would also be necessary for the EU’s monetary sovereignty – mainly if other central banks worldwide start developing digital currencies. It is also essential against the backdrop of the developing cryptocurrency market.

The proposal sets out the legal framework and essential elements of the digital euro, which would enable – once adopted by the European Parliament and Council – the European Central Bank to eventually introduce a digital euro that is widely usable and available. It will be for the ECB to decide if and when to issue the digital euro. This project will require significant further technical work by the ECB.

Next Steps

The Regulations are subject to the ordinary legislative procedure, which means that the European Parliament and the Council must now consider, amend and adopt it before it enters into force. Once the Regulation enters into force, all Member States in the euro area will be required to monitor acceptance of and access to cash in their territory, report their assessment results annually to the Commission and the European Central Bank, and take remedial measures if necessary.

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