Opinion of the European Central Bank of 3 November 2022 on the Slovenian scheme for the conversion into euro of hryvnia banknotes held by displaced persons from Ukraine (CON/2022/39)

OPINION OF THE EUROPEAN CENTRAL BANK of 3 November 2022 on the Slovenian scheme for the conversion into euro of hryvnia banknotes held by displaced persons from Ukraine (CON/2022/39) Introduction and legal basis

On 16 September 2022 the European Central Bank (ECB) received a request from the National Assembly of the Republic of Slovenia for an opinion on a draft law on intervention measures for the comprehensive regulation of the situation of displaced persons from Ukraine and for assistance to the Slovenian economy due to the consequences of the current crisis in Ukraine (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 third indent of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to Banka Slovenije. 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 of the draft law

1.1 The aim of the draft law is to mitigate the consequences of the humanitarian crisis resulting from the military invasion of Ukraine and the associated mass influx into Slovenia of displaced persons from Ukraine. The draft law amends various national laws concerning the temporary protection of displaced persons and introduces additional rights and protections for displaced persons in the fields of education, accommodation, health and social security. The draft law also aims to mitigate the consequences of the crisis in Ukraine for the Slovenian economy, in particular by facilitating the provision of convenient loans to local companies via the competent public fund. 1.2 In consideration of Council Recommendation 2022/C 166/01 , the draft law provides for the establishment of a national scheme enabling displaced persons from Ukraine who are entitled to temporary protection (hereinafter ‘displaced persons from Ukraine’) to convert their (Ukrainian) hryvnia banknotes into euro. Under the draft law, Banka Slovenije is required to set up and implement such a scheme . For that purpose, Banka Slovenije is to purchase hryvnia banknotes either directly from displaced persons from Ukraine, or from the individual local banks and branches of banks (hereinafter the ‘banks’) that agree to

exchange hryvnia banknotes for such displaced persons. In the latter case, Banka Slovenije and those banks are to enter into an agreement whereby the banks undertake to conduct the currency exchange transactions with the displaced persons from Ukraine and Banka Slovenije undertakes to buy the hryvnia banknotes from the banks. The agreement is to provide that: (a) the banks may exchange banknotes up to the limit of 10 000 hryvnia per displaced person; (b) the rate to be used in currency exchange transactions is to be the official exchange rate published by the National Bank of Ukraine, or the exchange rate agreed between Banka Slovenije and the National Bank of Ukraine; (c) the currency exchange transactions are to be free of commission and other charges; (d) the identity of displaced persons from Ukraine is to be verified in the manner agreed between the parties, in order to ensure compliance with the exchange limit of 10 000 hryvnia per displaced person; and (e) the currency exchange transactions of hryvnia for euro are to be carried out during the period of three months following the conclusion of the agreement between Banka Slovenije and the banks. The Slovenian government may extend this period for a further three months. 1.3 Under the draft law, Banka Slovenije is also to conclude an agreement with the National Bank of Ukraine, or another central bank, for the purchase by the National Bank of Ukraine or such other central bank from Banka Slovenije, of the hryvnia banknotes obtained in the course of the implementation of the national scheme for their conversion into euro .

2. General observations

2.1 The establishment and implementation of a national scheme to facilitate the conversion into euro of hryvnia banknotes by displaced persons from Ukraine entitled to temporary protection or adequate protection under national law, such as the scheme provided for in the draft law, does not constitute a task incumbent on the European System of Central Banks. The provisions of the draft law regarding the national scheme enabling displaced persons from Ukraine in Slovenia to convert their Ukrainian banknotes into euro implement the protection measure laid down in Council Recommendation 2022/C 166/01 which was adopted on the basis of Article 78(2)(c) TFEU and the competences of the Union in the field of asylum, with a view to offering appropriate protection to war refugees. 2.2 Where the legislature of a Member State chooses to assign the implementation of the protection measure laid down in Council Recommendation 2022/C 166/01 to its national central bank (NCB) in accordance with Article 14.4 of the Statute of the European System of Central Banks and of the European Central Bank, that function is performed on the responsibility and liability of that NCB. Nevertheless, when defining the responsibility and liability of NCBs in relation to the implementation of such a measure, Member States are required to comply with their obligations that derive from Union law and, in particular, Article 123(1) TFEU .

3. Prohibition of monetary financing

3.1 Article 123(1) TFEU prohibits the NCBs from granting overdraft facilities or any other type of credit facility to public authorities and bodies of the Member States. Article 1(1)(b) of Council Regulation No

3603/93 defines the term ‘other type of credit facility’ for the purposes of Article 123 TFEU as meaning, amongst others, any financing of the public sector’s obligations vis-à-vis third parties. Accordingly, for the draft law to be compatible with Article 123(1) TFEU, Banka Slovenije must not assume obligations vis-àvis third parties which could be incumbent on the public sector. This means not only that Banka Slovenije must not assume pre-existing obligations vis-à-vis third parties incumbent on other public authorities, but also that the effective financing of the obligations vis-à-vis third parties by Banka Slovenije must not result directly from the measures adopted by, or from the policy choices made by, other public authorities . 3.2 Under the draft law, Banka Slovenije is to purchase, from its own funds, hryvnia banknotes either directly from displaced persons from Ukraine or from banks which have acquired hryvnia banknotes from such persons. The financial obligations attached to the purchase of hryvnia banknotes are inherent in the implementation of the protection measure consisting of the national scheme for the conversion of hryvnia banknotes into euro, with which Banka Slovenije is entrusted, and do not arise from the specific choices that Banka Slovenije would make in that context or the manner in which it carries out the task assigned to it. It follows, therefore, that the effective financing by Banka Slovenije of the obligations vis-à-vis displaced persons from Ukraine results directly from the protection measure and from the policy choices made by the Slovenian legislature. Consequently, the draft law is not compatible with Article 123(1) TFEU, as it requires Banka Slovenije to assume obligations vis-à-vis third parties incumbent on the public sector. To ensure compatibility with the prohibition of monetary financing, the draft law should be amended to ensure that the purchase of hryvnia banknotes is financed from budgetary resources, and not from Banka Slovenije’s own funds.

4. Practical implementation of the draft law

4.1 In addition to the above observations, the ECB understands that in the current circumstances the National Bank of Ukraine does not intend to enter into new agreements with foreign central banks for the exchange of hryvnia banknotes obtained from war refugees, beyond those agreements that it has already concluded with certain foreign central banks. This stance seems highly relevant to the practical implementation of the draft law, which provides that Banka Slovenije is to conclude an agreement with the National Bank of Ukraine, or another central bank, which would then purchase the hryvnia banknotes obtained by Banka Slovenije in the course of the implementation of the national scheme for their conversion into euro. The impact that the National Bank of Ukraine’s current stance on new agreements with foreign central banks has on the implementation of the national conversion scheme should therefore be considered by the Slovenian legislator.

This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 3 November 2022. [signed]

The President of the ECB

Christine LAGARDE