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.
The first part of this article looked at whether legal tender is a European or national competence and whether the right to pay in cash may be restricted. In this second part, we analyse the link between legal tender and the exercise of fundamental rights. We 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:
The first two points were addressed in Part 1 of this article. The last two will be discussed here.
“[Cash] use is not generally necessary for the enjoyment of those fundamental rights […] However, a direct link between cash and the exercise of fundamental rights does exist in cases where there is a social inclusion element of the use of cash.” Pitruzzella, however, points out that “the applicants in the main proceedings do not appear to fall into that category.
Pitruzzella also plays down the argument that cash is the only financial instrument free of insolvency risk, by arguing that, in his view, financial regulation and supervision is sufficiently robust. “It is true that physical money in the form of cash […] is currently the only form of central bank money […] and so is not exposed to the risk of bankruptcy of the financial institution managing the account. Nevertheless, this risk – which in practice, owing to the strict regulations that govern financial institutions, can in fact be considered marginal – does not restrict the use of other forms of money or other means of payment in order to exercise those fundamental rights, as is shown by the widespread and ever-increasing use of non-cash forms of money in activities where fundamental rights are exercised.”
Siekmann, in his 2018 paper Legal Tender in the Euro Area, has an opposing view: “Finally it is often forgotten that the use of financial instruments other than legal tender implies an additional risk of insolvency. The intermediary that issues it may become insolvent but not so a central bank. Deposit guarantee schemes in the EU are legally and economically insufficient and in addition a bail-in instrument, which can pose a substantial risk for depositors, has been installed by the EU.”
Pitruzzella also discharges the role of cash in protecting privacy as in the case present the radio and television public authority knows the plaintiff’s personal details. Yet cash’s role as the only payment means protecting privacy could be viewed as protecting public interest. As Siekmann notes: “The population has a right to be left alone by the government unless adequate and convincing grounds for onerous actions can be shown.”
At the hearing in June, one of the judges asked if the term ‘legal tender’, as defined by the Treaty, would have an impact on the ‘development’ of the ECB’s central bank digital currency (CBDC). The decision to raise the topic of CBDCs was rather odd and out of context given the case present. Yet Pitruzzella decided to elaborate extensively on the possibility of application of the legal tender status not only for a potential ‘digital euro, but electronic payments as well. Interestingly, the timing of the opinion coincides with the publication of the Retail Payments Strategy for the EU, which was released five days earlier, and the ECB’s Report on a digital euro, released three days later.
Pitruzzella argues that “it can in no way be inferred […] that the constitutional legislature of the Union intended to exclude the possibility […] to assign, alongside addition to euro banknotes and coins, the status of legal tender to other forms of currency that are not necessarily physical, ” such as a CBDC, but notably also other forms of scriptural money.
Pitruzzella also observes that the European Union and Commission seemed to be favouring, in his interpretation, electronic payments over cash: “although the Union has not explicitly assigned the status of legal tender to forms of currency other than cash, it has nevertheless comprehensively regulated payment services […] and the issue of electronic money. […] [The] Union itself has favoured the use of electronic means of payment.” With those payments’ regulations the Union “contributed, in view of the security and proliferation of these means of payment, to a reduction in the use of cash.” He also adds that “some believe that scriptural money should now be considered to have the status of legal tender” and supports this argument with work of Vincenzo De Stasio, ‘Verso un concetto europeo di moneta legale: valute virtuali, monete complementari e regole di adempimento’ (Towards a European concept of legal money: virtual currencies, complementary currencies and compliance rules), Banca borsa titoli di credito, 2018.
The potential argument that new regulation is simply worked on and introduced in order to regulate new instruments and new associated risks versus no need to regulate cash due its safety, is not considered by Pitruzzella. Despite the recent Wirecard scandal implying both that the risk to depositors isn’t just marginal and that supervisors are still catching up:
“When Wirecard collapsed and its UK division was forced to cease regulated activities for three days, millions of UK customers were unable to access their accounts. For many, the potential consequences were serious. Some relied on their app to cover direct debits and receive payments. The Financial Conduct Authority (FCA) responded with new measures to protect users of payment services. But with the digital payments market expanding rapidly, regulators are under pressure to review their approach to the sector.”
Pitruzella’s understanding that the EU is favouring electronic payments at the cost of cash also appears at odds with theRetail Payments Strategy for the EU, which stresses the importance of preserving access to cash: “In the framework of the ELTEG, the Commission will […] closely follow the work on access to cash to be carried out under the auspices of the Euro Retail Payments Board. Taking this work into account, as well as the deliberations of the ELTEG, it may decide to take appropriate action to protect the acceptance and availability of euro cash at the end of 2021.” The ECB also maintains that “a digital euro would be introduced alongside cash; it would not replace it.”
While he is clear in his opinion that the Bundesbank Act cannot be applied, Pitruzzella nevertheless firmly puts the ball back in the German court by saying “[the BVewG] has all the necessary legal and factual elements to carry out the analysis, to determine, on the basis of any guidance provided by the Court [ECJ], whether [the Hessischer Rundfunk] provision imposing limitations on payments in notes is compatible with EU law and with the status of legal tender of euro banknotes.”
He also volunteers how he would approach the case. In his view, the radio and TV station’s rule on prohibiting the acceptance of cash is purely of parafiscal nature and therefore does not encroach on EU exclusive competence, further it does “not manifestly lead to the abolition of euro banknotes and explicitly provides for other lawful means for the settlement.” Furthermore, it appears to Pitruzzella that the Rundfunk imposed restrictions also with the objectives of making “tax collection more efficient and combating crime” – and in this respect, Pitruzzella believes “that these objectives can all be described as public reasons, which can justify restrictions on the use of cash.” Pitruzzella did voice his concern in regard to social exclusion of those who don’t own a bank account. However, he noted that “it is not apparent from the case file that they have ever claimed that they were unable to pay the radio and television licence fee because they did not have access to basic financial services.”
Pitruzzella’s approach can however be questioned, as to this day there is still no sound empirical evidence that cash limitations help fight crime and terrorism. Indeed, criminals are sophisticated enough to use cryptocurrencies to move money. It is also questionable if tax efficiency can be achieved by imposing restrictions on the use of cash alone. Additionally, while one government institution refusing cash payments does not constitute a “complete abolition” of cash, if other institutions follow this lead it could erode the cash infrastructure, making it both unsustainable and unreliable, as well as undermining stability and trust in the euro.
The precise date of the court ruling has not been made public yet, but it can be expected before the end of the year.