Opinion of the European Central Bank of 12 November 2021 on the obligation to accept cash payments (CON/2021/32)

OPINION OF THE EUROPEAN CENTRAL BANK of 12 November 2021 on the obligation to accept cash payments (CON/2021/32) Introduction and legal basis

On 20 October 2021, the European Central Bank (ECB) received a request from the Danish Financial Supervisory Authority for an opinion on a draft law amending the Law on financial services, the Law on capital markets, the Law on payments, and various other laws (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union (TFEU) and the first, second and third indents of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to currency matters, means of payment, and Danmarks Nationalbank. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose and description of the draft law

1.1 The draft law proposes to regulate the so-called ‘cash rule’ under the Law on payments, which obliges payment recipients to accept payments in cash. Under the current cash rule, vendors are obliged to accept payments in cash in the case of physical transactions, except for narrowly defined cases. These are distance sales, such as sales via the internet, and sales via self-service vending machines, which are exempt from the cash rule. Moreover, in areas with a particularly high risk of robberies, the cash rule only applies between the hours of 06:00 and 20:00 provided that the Financial Supervisory Authority has been notified in advance of the intention not to apply the cash rule. The obligation to notify is a purely administrative measure and does not imply that the vendor obtains an authorisation from the Financial Supervisory Authority . 1.2 The draft law proposes to restrict the cash rule by allowing payment recipients to derogate from the cash rule in respect of payments from payers who are not consumers. In this context it is left to the parties’ freedom of contract to agree the means of payment applicable. According to the explanatory

1 Forslag til lov om ændring af lov om finansiel virksomhed, lov om kapitalmarkeder, lov om investeringsforeninger m.v. og flere andre love.

2 Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).

3 The legal tender status of Danish kroner banknotes and coins is laid down in Article 8.2 of the Law on Danmarks Nationalbank (Lov om Danmarks Nationalbank, Lov nr. 116 af 7. april 1936, som ændret ved lov nr. 166 af 13. april 1938, § 44 i lov nr. 88 af 15. marts 1939, lov nr. 67 af 15. marts 1967, § 90 i lov nr. 174 af 30. april 1969 og § 16 i lov nr. 579 af 1. juni 2010) and Article 4.1 of the Law on coins (Lov om mønter, Lov nr. 1803 af 12. december 2018). Thus, the cash rule under the Law on payments is a separate statutory obligation. notes on the draft law , the proposal seeks to balance the need to avoid unnecessary burdens on professional payment recipients, whilst maintaining the right for consumers to pay by means of cash. Moreover, the restriction applies only for a specific individual transaction, and therefore not, for example, where the payment recipient also sells products or services to consumers. The explanatory notes explain further that, although Danish people use less cash than before, there are still consumers who need to be able to pay by means of cash, for which reason the preservation of the general obligation to receive cash as a means of payment is appropriate. However, these considerations are not considered pertinent for payments between professionals. 1.3 The draft law contains a further proposal to restrict the cash rule as regards payment recipients participating in festivals, town celebrations and similar events of a temporary nature . For such events the acceptance of cash may be refused if the following cumulative conditions are fulfilled: (a) the event has a maximum duration of 14 days; (b) the event takes place not more than once a year; (c) the event takes place within a geographically limited area subject to access controls; and (d) the event organiser informs consumers of the cash restriction in a clear manner prior to their registration for the event. Where no registration is required, the event marketing must inform consumers of the cash restriction in a clear manner. The proposed rule disapplies the cash rule requiring the acceptance of cash. However, this does not mean that such events are prevented from accepting cash if they so wish. According to the explanatory notes , based on his existing restrictive authority to grant dispensations from the cash rule, the Minister for Business has developed a practice whereby payment recipients who participate in an event with a short duration, taking place not more than once a year, and located within a limited area, can be authorised to derogate from the cash 7 8 rule . The explanatory notes further explain that the draft law thus codifies the administrative practice developed by the Minister, without making material amendments to the cash rule itself. The advantage is considered to be the administrative relief for professionals taking part in events, festivals, etc., who will no longer have to apply for a derogation from the cash rule if they wish to restrict the acceptance of cash during all hours of the day. The explanatory notes emphasise that recurring events, such as football matches in a stadium or events in concert halls, are not included in the scope of the new restriction. 1.4 According to the explanatory notes to the draft law , the provisions regulating cash free payments during the evening and at night have proven to work in accordance with the policy intention. Nonetheless, the draft law proposes to abolish the obligation to notify the supervisory authority of the intention to apply reduced hours of cash acceptance, i.e. from 06:00 to 20:00, in areas with a

4 See points 1 and 2.10.1 of the general comments and page 124 of the specific comments on the draft law.

5 See paragraph 1.3 of Opinion CON/2021/18. All ECB opinions are published on EUR-Lex.

6 See point 2.10.1 of the general comments on the draft law.

7 According to point 2.10.1 of the general comments on the draft law, the authorisation to make dispensations was delegated to the Financial Supervisory Authority in 2020, which since then has exercised that power in accordance with the practice developed by the Minister.

8 See page 124 of the specific comments on the draft law.

9 See point 2.10.1 of the general comments on the draft law. particularly high risk of robberies, without amending the cash rule as such . According to the explanatory notes , the proposal is made with a view to easing the administrative burdens linked to the obligation to notify the supervisory authority in advance of the intention to apply restricted hours during which cash must be accepted as a means of payment. 1.5 Finally, the draft law also makes proposals on the designation of national competent authorities as a consequence of Regulation (EU) 2021/23 of the European Parliament and of the Council on a framework for the recovery and resolution of central counterparties and expands the competence of, inter alia, Danmarks Nationalbank to impose public administrative fines on persons and entities operating registered payment systems under the Law on capital markets .

2. General observations

Role and importance of cash payments in society

2.1 Electronic payment instruments are increasingly used as the preferred form for retail payments in a number of Member States, including Denmark . In this respect, Denmark is currently among the most digitalised countries in the world , which, inter alia, enables the use of alternative means of payment. While in 2009 cash payments accounted for 48% of the total number of payments in physical trades in Denmark, the figure in 2019 was down to 16% . 2.2 Cash continues to play an important role in society. The ability to pay in cash remains particularly important for those who, for various legitimate reasons, prefer to use cash rather than other payment instruments, or do not have access to the banking system and electronic means of payments. Cash is generally also useful as a payment instrument because it is widely accepted, fast and facilitates control over the payer’s spending. Moreover, it is the only payment instrument that allows citizens to settle a transaction in central bank money, which is also settled instantly . In addition, the ability to pay in cash remains particularly important for certain groups in society that, for various legitimate reasons, prefer to use cash rather than other payment instruments. These groups include not only elderly people but also some disabled citizens, immigrants, socially vulnerable citizens, minors and others with limited or no access to digital payment services . However, the use of cash is declining

10 For a list of areas identified by the Ministry of Business as representing a particularly high risk for robberies see: https://em.dk/nyhedsarkiv/2017/november/nye-regler-goer-det-nemmere-for-butikker-at-beskytte-sig-mod-roeveri/. For a list of entities that have notified the Financial Supervisory Authority that they intend to receive cash only during restricted hours, see: https://www.finanstilsynet.dk/Lovgivning/Information-om-udvalgte-tilsynsomraader/Betalingstjenester-og-epenge/Kontantreglen

11 See point 2.10.1 of the general comments on the draft law.

12 Regulation (EU) 2021/23 of the European Parliament and of the Council of 16 December 2020 on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132 (OJ L 22, 22.1.2021, p. 1).

13 Lov om kapitalmarkeder, lovbekendtgørelse nr. 377 af 2. april 2020.

14 See paragraph 2.4 of CON/2020/33.

15 See the report by Danmarks Nationalbank ‘Danes primarily opt for electronic payment solutions’, September 2020, page 2.

16 See the report by Danmarks Nationalbank ‘Cash payments are declining’, February 2020, page 9.

17 See paragraph 2.4 of Opinion CON/2017/8; paragraph 2.1 of Opinion CON/2019/41; paragraph 9.2.1 of Opinion CON/2020/13; paragraph 2.3 of Opinion CON/2020/21; paragraph 7.2.1 of Opinion CON/2021/9; paragraph 2.1 of CON/2021/18.

18 See paragraph 1.5 of Opinion CON/2019/41. in Denmark, also by elderly people. Cash payments as a share of the total number of payments broken down by age shows that in 2017 people in the age group 70-79 years used cash in 40% of their payments in physical trades, and that this number had declined to 22% in 2019 . Taking this into account, the ECB has a positive view of further innovation and development in the field of electronic payment instruments, recalling that cash has a unique role, facilitating the inclusion of the entire population in the economy by allowing financial transactions to be settled in this way. Furthermore, cash could play an important role in the event of a disturbance in the payment system and it is robust against cyber-crime. In a crisis situation, such as the ongoing COVID-19 pandemic, the non-acceptance of cash at physical points of sale may be of particular significance to the elderly and people with disabilities, or anyone unable to access cashless means of payment, and who, as a consequence, could face serious difficulties meeting their essential needs. 2.3 Against this background, the ECB strongly welcomes the fact that the draft law upholds the cash rule in Denmark, and thereby preserves citizens' right to pay in cash. Status of euro banknotes and coins as legal tender 2.4 Denmark is a Member State with a derogation from participating in the third stage of economic and monetary union . Although Union law only regulates the legal tender status of euro banknotes and coins, the Union framework applicable to the legal tender status of euro banknotes and coins will become directly applicable in Denmark if and when the euro is introduced in Denmark. Against this specific institutional backdrop, the ECB has prepared an assessment of the draft law’s provisions compared with relevant practices in the euro area, in particular as concerns the legal tender status of euro banknotes. 2.5 Under the TFEU, the European System of Central Banks (ESCB) has the basic task of promoting the smooth operation of payment systems , and the ECB has the exclusive right to authorise the issue of euro banknotes within the Union . The euro banknotes issued by the ECB and the national central banks of the euro area are the only banknotes with legal tender status within the euro area . 2.6 The concept of ‘legal tender’ of a means of payment denominated in a currency unit has been considered by the Court of Justice of the European Union. In particular, the Court has clarified that the concept of ‘legal tender’ signifies that this specific means of payment cannot generally be refused in settlement of a debt, denominated in the same currency unit at its full face value, with the effect of discharging the debt. In clarifying the concept of ‘legal tender’ under Union law, the Court has taken into consideration Commission Recommendation 2010/191 of 22 March 2010 on the scope and effects of legal tender of euro banknotes and coins , which provides useful guidance for the interpretation of the relevant provisions of Union law. Point 1 of Recommendation 2010/191 states that, where a payment obligation exists, the legal tender of euro banknotes and coins should imply

19 See the report by Danmarks Nationalbank ‘Cash payments are declining’, February 2020, page 9.

20 See paragraph 2.1 of Opinion CON/2019/41; paragraph 9.2.1 of Opinion CON/2020/13 and paragraph 2.3 of CON/2021/18.

21 See Protocol (No 16) to the TFEU on certain provisions relating to Denmark.

22 Article 127(2) TFEU and Article 3.1 of the Statute of the ESCB and the ECB. 23 First sentence of Article 128(1) TFEU and first sentence of Article 16 of the Statute of the ESCB and the ECB. 24 Third sentence of Article 128(1) TFEU and third sentence of Article 16 of the Statute of the ESCB and the ECB. 25 OJ L 83, 30.3.2010, p. 70. (a) mandatory acceptance of those banknotes and coins; (b) their acceptance at full face value; and (c) their power to discharge from payment obligations. According to the Court, this shows that the concept of ‘legal tender’ encompasses, inter alia, an obligation in principle to accept banknotes and coins denominated in euro for payment purposes . 2.7 Insofar as it allows the Union legislature to lay down the measures necessary for the use of the euro as the single currency, the Court clarified that Article 133 of the Treaty empowers the Union legislature alone to specify the legal rules governing the status of legal tender accorded to banknotes and coins denominated in euro, insofar as that is necessary for the use of the euro as the single currency. Such exclusive competence precludes any competence on the part of the Member States in the matter, unless they have been empowered by the European Union to do so or for the implementation of Union acts . 2.8 However, the Court further clarified that the status of legal tender calls only for acceptance in principle of banknotes and coins denominated in euro as a means of payment, not for absolute acceptance. The Union’s exclusive competence in matters of monetary policy is without prejudice to the competence of the Member States whose currency is the euro to regulate the procedures for settling pecuniary obligations, which do not affect the principle that, as a general rule, it must be possible to discharge a payment obligation in cash. Thus, that exclusive competence does not prevent a Member State from adopting a measure falling within one of the Member State’s competences; for instance, a Member State can, based on its competence to regulate administrative procedures, oblige the public administration to accept cash payments from citizens. Neither does it prevent a Member State, in the exercise of its own powers, from introducing, on legitimate public interest grounds, a derogation from that obligation for statutorily imposed payments, subject to compliance with certain conditions. In particular, the obligation to accept euro banknotes and coins can, in principle, be restricted by the Member States for reasons of public interest and subject to the principle of proportionality. This means that any such restrictions need to be proportionate to the public interest objective pursued. When limiting the possibility, recognised by Union law, of generally discharging a payment obligation in banknotes and coins denominated in euro, Member States must ensure that any measures comply with the principle of proportionality, which requires in particular that they are appropriate for achieving the legitimate objectives pursued by the legislation at issue and do not go beyond what is necessary in order to achieve those objectives . The Court has established that restrictions of the legal tender status of euro banknotes in particular require (i) that the legislation does not have the object or effect of establishing legal rules governing the status of legal tender of euro banknotes; (ii) that it does not lead, in law or in fact, to abolition of those banknotes, in particular by calling into question the possibility, as a general rule, of discharging a payment obligation in cash; (iii) that it has been adopted for reasons of public interest; (iv) that the limitation on payments in cash

26 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, ECLI:EU:C:2021:63, paragraphs 46 to 49. 27 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, ECLI:EU:C:2021:63, paragraphs 50 to 52. 28 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, ECLI:EU:C:2021:63, paragraphs 55 to 56 and 67 to 70. which the legislation entails is appropriate for attaining the public interest objective pursued; and (v) that it does not go beyond what is necessary in order to achieve that objective . 2.9 The ECB has provided additional guidance in its opinions with respect to whether limitations may be considered to be proportionate. In particular, the ECB has noted that the broader and more general a limitation is, the stricter should be the interpretation of the requirement for the limitation to be proportionate to the objective pursued. When considering whether a limitation is proportionate, the adverse impact of the limitation in question and whether alternative measures could be adopted that would fulfil the relevant objective with a less adverse impact should always be considered . 2.10 Taking into account the foregoing, the ECB considers that the draft law neither has the object nor the effect of amending the legal rules governing the status of legal tender of Danish kroner banknotes or coins, but on the contrary preserves citizens’ right to fulfil their payment obligations by means of cash. Moreover, as regards the requirement that the measures must be appropriate for attaining the public interest objective pursued, the ECB considers it a legitimate interest to create a legal basis allowing professionals in transactions they are conducting among themselves to opt, as part of their contractual freedom, for non-cash payment forms. 2.11 In the present context, the ECB observes that the restrictions introduced by the draft law are not absolute. However, the Court has highlighted that lawful alternative means of payment need to be readily accessible to everyone liable to pay , and therefore hinted to the need for exceptions if the latter is not the case. With that in mind, the ECB considers the draft law in general to be proportionate noting, however, that as regards all provisions restricting the general rule facilitating payment in cash, in the case of contingencies where alternative means of payment are temporarily not functioning, flexibility should be ensured to facilitate settlement of payment obligations in cash. This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 12 November 2021. [signed] The President of the ECB Christine LAGARDE

29 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, ECLI:EU:C:2021:63, paragraph 78. 30 See paragraph 2.7 of Opinion CON/2017/8. 31 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, ECLI:EU:C:2021:63, paragraph 77.