The Advocate General at the European Court of Justice, Giovanni Pitruzella issued an opinion which determines that while creditors have “an obligation in principle” to accept cash, it may be waived if both parties have contractually agreed to another payment method or if a Member State introduces legislation limiting cash payments in pursuit of the “public interest” objective. His opinion, however, imposes limits on such measures. States cannot abolish euro banknotes, must not go beyond what is necessary to achieve the objective, and must consider the “social inclusion element of cash” and that “vulnerable people” have no other means to pay than by cash.
This article will look at whether legal tender is a European or national competence and whether the right to pay in cash may be restricted. A second article will analyse the link between legal tender and the exercise of fundamental rights. It will also look at the implications of legal tender for a central bank digital currency (CBDC).
In late September, Giovanni Pitruzzella, Advocate General at the European Court of Justice (ECJ), opined that German national law’s definition of legal tender, which determines euro banknotes as the sole unrestricted legal means of payment, infringed on the exclusive competence of the European Union and therefore cannot be applied.
The opinion relates to a legal challenge against the Hessischer Rundfunk, a German public broadcaster. The Hessischer Rundfunk was accused of not accepting payments for an obligatory fee in euro cash, heard in the Grand Chamber in mid-June.
The case was originally brought forward to the Bundesverwaltungsgericht (BVewG), Germany’s administrative court.
The plaintiffs argued that 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 BVewG considered the prohibition of payment in cash of the radio and television licence fee contrary to German law on legal tender. This German legal act explicitly defines euro banknotes as “the sole unrestricted legal means of payment”. However, this 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.”
The BVewG therefore referred for a judgment on this discrepancy to the ECJ, asking three questions before deciding on the final ruling:
The role of the Advocate General is purely an advisory one. The judges request an opinion if they deem it necessary before deliberating and giving the actual verdict. That said, these opinions are of significance, since the jury tends to follow the opinions in the majority of cases. Advocate generals choose their own style and format when issuing opinions. This allows them to go into a lot of detail and the opinions tend to be elaborate. Furthermore, although the opinion is not a ruling from the court itself, it is now a document in the public domain that can be referred to in discussions by all stakeholders involved in the future of cash.
According to the advocate general, the case raised “new questions with constitutional implications, concerning the extent of the European Union’s exclusive competence in the area of monetary policy and the effects of the legal tender of euro banknotes provided for in EU law. It also raises the issue of whether Member States whose currency is the euro may adopt national measures restricting the use of cash.”
Pitruzzella acknowledges the “case raises new questions which are of considerable practical importance, both now and in the future, for the euro as the single currency. The Court is asked to interpret concepts of monetary law which it has not previously had an opportunity to rule on, and, more specifically, the concept of legal tender. All this in a complex environment in which the success of scriptural and electronic money and technological progress, with potentially disruptive effects on the use of money, is accompanied by the existence of a significant number of vulnerable people who still do not have access to basic financial services.”
Pitruzzella’s key findings are:
This article discusses the first two points. The last two will be discussed in Part two.
Pitruzzella concludes that the authorisation to issue euro cash constitutes a part of the EU’s, and hence the European Central Bank’s (ECB), exclusive competence in the area of monetary policy.
Furthermore, in Pitruzzella’s view, the provision of the Bundesbank Act (a national legal act), singling out euro banknotes as the only legal tender means of payment, is not compatible with EU’s exclusive competence for monetary policy and cannot be applied in this case or at all. By defining banknotes as the sole unrestricted means of payment, this adopted legislation constitutes a set of rules on legal tender.
In other words, German legislature has, according to Pitruzzella, overstepped its competencies by setting a national legislation that “is not simply an exact copy of the provisions of EU law”, but “aimed at supplementing the concept of legal tender in EU law” to ensure the unrestricted nature of euro banknotes. He also finds that the clear intention of the German lawmakers to supplement the EU law in order to provide legal clarity is well documented in work files of the Bundestag.
Furthermore, Pitruzzella believes, the Bundesbank Act cannot be applied even in the case of EU’s lack of legislative action on the part of the latter. The ‘lacking legislative action’ on the part of EU legislature being the absence of a precise and uninform definition of the concept of legal tender.
Hence, according to Pitruzzella, no Member State has the right to determine the scope of the concept of legal tender. Should the ECJ agree, the Bundesbank Act could be devoid of any legal effect. This could potentially open the door to legal challenges against other Member States whose respective national laws may be determining the scope of legal tender. Equally, should the ECJ disagree with the opinion, each Member State could legislate their own set of rules guiding the status of legal tender and risk undermining the euro as a whole.
Pitruzzella himself highlights that EU law currently does “not provide a precise definition of the concept of legal tender[and] it must be given an independent and uniform interpretation throughout the Union.” He encourages work on that matter, by saying: “although the EU legislature has not provided a precise definition of the concept of legal tender, itremains free to do so at any time.”
It is about time there is greater legal certainty in the euro area with regard to a common interpretation and definition of legal tender, what it means and how it must be protected.
What are the effects of the status as legal tender of euro banknotes provided for in EU law? The advocate general’s view is, by way of interpretation given the lack of precise definition, that as EU law currently stands, the concept of legal tender with regard to banknotes and coins must be understood as entailing an obligation in principle for the creditor of a payment obligation to accept banknotes and coins. However, this obligation, he finds, is not to be seen as absolute and only holds unless otherwise agreed independently by contractual parties, or unless otherwise provided by regulations restricting their use as a means of payment for public reasons.
Pitruzzella determinates the above scope of the concept of legal tender based on guidance from CommissionRecommendation 2010/191/EU (Recommendation) from March 2010 on the scope and effects of legal tender of euro banknotes and coins and the Recital 19 of Council Regulation No 974/98 (Recital) on the introduction of the euro, mentioned above.
He highlights that the Recommendation is based on the main conclusions in discussions captured within the 2010 Report of the Euro Legal Tender Expert Group (ELTEG), “drawn up by the working group of representatives of the Member States of the euro area” and “set up under the aegis of the European Commission and the ECB”. He explains that the Recommendation provides “valuable guidance” given that in the past the ECJ “recognised that where a document […] has been drawn up by a group of national experts and the Commission’s services, it may provide useful information for the interpretation of the relevant provisions of EU law.” It would be interesting to know to what extent ELTEG members were aware in 2010 of the significance their discussions would take on.
The general acceptance that cash settlement can be waived in accordance with the contractual freedom of the parties doesn’t bode well for the future of cash. The Covid-19 pandemic has brought the question of contractual freedom under the spotlight, with retailers refusing cash on the grounds of unconfirmed fears that currency transmits the virus. However, it raises the question of where contractual freedom between the parties enters into force in a person-to-business transaction. When a customer enters a shop with a “cards-only” sign on the door, does he enter a contract? If all shops in the area stop accepting cash, is it a case of contractual freedom or a local monopoly of non-cash payments limiting customer choice?
The ELTEG report, utilised in other instances by Pitruzzella, highlights the debate and disagreement on this issue: “It was not possible to reach an agreement on the issue because of the two different schools of thought described above: according to one school, contractual freedom can limit the public law provisions of legal tender, whereas according to the other one, contractual freedom cannot prevail over the public law principle of legal tender.” What might be needed is a universal ban on cash-less shops, similar to what was legislated in New York and San Francisco.
Pitruzzella believes that, as recognised in Recital 19, in exercising their powers, Member States may adopt measures that impose limitations on payments in euro banknotes. Such limitations cannot lead in law, or in fact, to the complete abolition of euro banknotes. Moreover, they must be established for public reasons . Moreover, Pitruzzella finds that for Member States to take measures restricting  the use of cash ‘not only’ for tax evasion and crime fighting reasons, but also notably for “the organisation and functioning of public and tax administrations” reasons is compatible with the EU law concept of legal tender.
Pitruzzella also notes that the “oversight [lack of precise definition of legal tender] is no accident, given the sensitivity of the issue and the difference in the approach taken by the various Member States concerned.” Namely, varied legal and consumer traditions as highlighted, for Pitruzzella, in discussions captured within the 2010 Report of the ELTEG, assembly of national central banks and ministries of finance. In other words, Pitruzzella believes that oversight is there on purpose to give Member States some room for manoeuvre. “Member States [who] may, for public reasons, adopt measures […] limiting, in specific conditions and within certain limits, the use of cash.”
Pitruzzella defends his decision to take into account the Recital by saying although it “does not in itself constitute a legal rule and thus has no binding legal force of its own […] [it] provides qualified guidance on interpretation.” It follows from that Recital, according to Pitruzzella, that the EU legislature has recognised that there is some room for manoeuvre in pursuit of the public interest, not necessarily limited to public policy, to justify a waiver of the (non-absolute) mandatory acceptance by creditors.
Pitruzzella’s decision to take Recital as guidance can be debated. The applicants argued before the German court that “even in the preparatory work for Regulation No 974/98, that the Recital should only be transitional in scope”. Transitional, as it was only intended deal with the transitional period before the introduction of the euro in its paper form. Also, Helmut Siekmann, Professor of Money, Currency and Central Bank Law at Goethe University, in his working paper Restricting the Use of Cash in the European Monetary Union finds that “arguments from Recital 19 [of Regulation No 974/98] have to be dismissed. They lack any normative significance” and for justifying imposing limitations on cash. Interestingly Pitruzzella himself refers to Siekmann’s work in his opinion, but draws a different conclusion.
 Pitruzzella uses ‘public reasons’ and ‘public interest’ interchangeably.
 Report of the Euro Legal Tender Expert Group (ELTEG) on the definition, scope and effects of legal tender of euro banknotes and coins (2010) https://ec.europa.eu/economy_finance/articles/euro/documents/elteg_en.pdf
 Pitruzzella uses ‘public reasons’ and ‘public interest’ interchangeably.
 “This requires that the measures be appropriate for attaining the legitimate objectives pursued by the legislation at issue and not go beyond what is necessary in order to achieve those objectives.”