Are national governments in the Euro Area about to lose another vital piece of their economic sovereignty?
One of the more interesting and, dare I say, encouraging developments to have taken place in the payments sphere in recent years has been the gathering trend among city and state authorities in the United States to pass laws banning direct-to-customer businesses from refusing cash payments, with the state of Florida becoming the latest to join the trend. It is one of the rare slivers of hope in the ever-escalating Global War on Cash (GWoC). In Europe, a similar trend is taking place, albeit at the national level.
One major difference between Europe and the US is that cash is still the number one retail payment method in Europe, though its use diverges sharply among countries. The governments of both Switzerland and Austria, two of Europe’s biggest cash-loving countries, are considering passing laws to protect the role of cash as a means of payment. The first country to turn such ideas into policy, however, was Slovakia.
In June last year, the national government in Bratislava passed an amendment to the national constitution stating that “everyone has the right to make a payment for the purchase of goods and the provision of services using cash as legal tender,” and that “the acceptance of such payment may only be refused for reasonable or generally applicable reasons,” including security (e.g., risk of robbery) and technical reasons (e.g., a vending machine that does not accept cash). Also guaranteed by the new law is the right to perform a cash transaction in a bank or a branch of a foreign bank.
The constitutional law was unanimously adopted by the National Council of the Slovak Republic. In total, 111 of the parliament’s 150 MPs supported the amendment, reports English-language newspaper Slovak Spectator. According to the deputies, the complete abolition of cash in the future could seriously impact low-income groups as well as civil associations that finance their charitable activities from fundraising. Preserving the right to cash, they said, is also an essential step in promoting the financial literacy of the younger generation.
A Letter from Lagarde
But the new law is already in serious trouble. On January 13, the European Central Bank published a letter signed by the ECB President Christine Lagarde warning that: a) it had not been consulted on the law before its passage; and b) no euro zone member has the competence to introduce such measures in the monetary policy realm. Put simply, as the letter states, rules governing the status of legal tender of euro banknotes are “an area of exclusive competence of the Union under Article 133 of the Treaty.”
In other words, national member governments of the Euro Area do not have the right to protect cash’s status as legal tender. As such, the ECB (emphasis my own) “recommends that the provisions of Article 39a… of the Constitution guaranteeing the issuance of cash as legal tender and the right to make a payments in cash should either be deleted or, alternatively, amended to merely refer to the relevant provisions of Union law” — in other words, brought back in line with EU laws on legal tender.
Worrying, the ECB does not appear to be overstepping its legal bounds. In 2021, two German journalists, Norbert Häring and Johannes Dietrich, brought a lawsuit against the German public broadcaster Hessischer Rundfunk for not accepting cash payments for their radio and television license fee. A German court ultimately ruled in the claimants’ favour but, uncertain whether it was infringing on the EU’s exclusive competence over monetary policy in the eurozone, it referred the matter to the European Court of Justice (ECJ).
Here are a few key sections of the subsequent press release following the ECJ’s preliminary ruling:
First, the Court of Justice interprets the concept of ‘monetary policy’ in the area in which the
European Union has exclusive competence for the Member States whose currency is the euro.
The Court begins by stating that that concept is not limited to its operational implementation but also entails a regulatory dimension intended to guarantee the status of the euro as the single currency… It adds that the concept of ‘legal tender’ of a means of payment denominated in a currency unit signifies that that means of payment cannot generally be refused in settlement of a debt denominated in the same currency unit.Last, it points out that the fact that the EU legislature can lay down the measures necessary for the use of the euro as the single currency reflects the need to establish uniform principles for all Member States whose currency is the euro and contributes to the pursuit of the primary objective of the European Union’s monetary policy, which is to maintain price stability…
Consequently, the Court rules that the European Union alone is competent to specify the status of legal tender accorded to banknotes denominated in euro…
[T]he Court notes that the status of legal tender of banknotes and coins denominated in
euro implies, in principle, an obligation to accept them. However, it makes clear that that obligation may, in principle, be restricted by the Member States for reasons of public interest, provided that those restrictions are proportionate to the public interest objective pursued, which means, in particular, that other lawful means for the settlement of monetary debts must be available.
In the end, the ECJ ruled that in this particular instance it is up to the German court to determine whether the broadcaster’s refusal to accept the cash payments is “proportionate to the objective of actually recovering the radio and television licence fee, in particular in light of the fact that the lawful alternative means of payment may not be readily accessible to everyone liable to pay it.” The ruling also made clear that euro cash cannot “generally” be refused in settlement of a debt.
More importantly, however, the ECJ’s ruling confirmed that: a) the EU has exclusive competence over monetary policy in the EU; and b) said competence extends beyond matters of operational implementation to include “a regulatory dimension.” That includes in all areas relating to its status as legal tender.
A Highly Convenient State of Affairs
So, if I am interpreting these two legal-financial documents correctly (input from readers with a legal, financial or regulatory background most welcome), the ECJ in its 2021 ruling is essentially saying that EU national governments can, if they so wish, take legislative actions to restrict the use of cash so long as they can present a compelling enough public interest case. Meanwhile, according to the ECB’s recent letter to the Slovakian government, EU Member States cannot take similar such legislative actions to protect the use of cash.
This is highly convenient given that many EU national governments would like nothing more than to further restrict the use of cash — for their own benefit as well as that of the banks, fintechs, big techs, payment companies, large retailers, etc, whose interests they serve most of the time. At the same time, a smaller number of governments actually want to preserve the right of their citizenry to use cash by enshrining it in their national constitution. And according to the ECB, by EU law they don’t have the right…
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Nick Corbishley 