On June 28 the European Commission published a press release outlining its Single Currency Package.
It will probably come as no great surprise to know that a key part of this package is the proposed regulatory framework for a digital euro, the potential central bank digital currency (CBDC) currently being investigated by the European Central Bank (ECB).
The other key element is a proposal for the legal tender of euro cash, intended to safeguard its role within the economy and ensure its continued acceptance and accessibility as a complement to the digital euro.
What may be surprising is that no legislative definition for ‘legal tender’ of euro coins and banknotes has existed until now. Instead, key aspects as to the scope and effects of ‘legal tender’ have relied on a March 2010 Commission Recommendation, as the proposal notes:
“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.”
So, it would seem that such a proposal is long overdue. The implications of the existing Commission Recommendation are that legal tender requires (i) mandatory acceptance, (ii) at full face value and (iii) with the effect of discharging payment obligations.
In addition, the new proposal adds the importance of ensuring ease of access to euro cash, arguing that if cash is not accessible then it cannot be used, thus undermining its status as legal tender.
These two facets, ‘acceptance’ and ‘access’, form the key pillars of the newly proposed regulation. While acceptance of coins and banknotes is generally high across the euro area, certain member states and industry sectors are slowly moving towards a more cashless model, and issues have also emerged in accessing cash due to bank and ATM closures.
Member states will need to closely monitor the situation and address any issues identified, with the Commission reserving the right to specify its own counter-measures if required. This is to guarantee the financial inclusion of those groups who still rely on cash payments, such as older generations.
Between the two proposals, the Commission also specifies that cash and digital euros must be readily exchangeable at par, although smaller merchants will not be forced to accept the digital euro if the costs to do so are too great.
As for the meat of the proposed digital euro legislation, it will be fairly familiar to anyone who has been following the ECB’s reports on their ongoing investigation into a CBDC. We continue to Observe further developments.
