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European Commission Proposes to Regulate on Mandatory Acceptance of Cash

Categories : Cash has legal tender status, Uncategorized
June 29, 2023
Tags : Acceptance of cash, Access to cash, Euro Area, Legal tender
The European Commission has put forward two proposals to ensure that euro-area citizens and businesses can continue to access and pay with cash, and to set out a framework for a possible digital euro.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

Across the euro 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 cash.

The Commission has proposed two mutually supportive sets of measures to ensure that people have both payment options, cash and digital, when they want to pay with central bank money:

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 value 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 method and access essential cash services. It will provide the financial inclusion 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.

This post is also available in: Spanish