Opinion of the European Central Bank of 24 July 2024 on a constitutional law on cash as legal tender and access to cash (CON/2024/26)

OPINION OF THE EUROPEAN CENTRAL BANK of 24 July 2024 on a constitutional law on cash as legal tender and access to cash (CON/2024/26) Introduction and legal basis

On 10 May 2024 the European Central Bank (ECB) received a request from the Slovenian National Assembly for an opinion on a draft proposal to initiate a procedure to amend the Constitution of the Republic of Slovenia to include a right to use cash as legal tender in the Republic of Slovenia (hereinafter the ‘draft constitutional 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 and Article 2(1), first and second indents of Council Decision 98/415/EC , as the draft constitutional law relates to currency matters and means of payment. In accordance with Article 17.5, first sentence, of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft constitutional law

1.1 As noted in the consultation request, the draft constitutional law was prepared and presented to the Slovenian National Assembly for consideration by a qualified group of voters. 1.2 The draft constitutional law would supplement the Slovenian Constitution by inserting a new Article 50.a in Chapter Two of the Constitution dealing with human rights and fundamental freedoms. 1.3 The draft constitutional law provides that cash is legal tender in the territory of Slovenia . The draft constitutional law further specifies 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 right to perform a cash transaction in a bank or a branch of a foreign bank is guaranteed . 1.4 The explanatory memorandum accompanying the draft constitutional law explains that the aim of the draft constitutional law is to set up a constitutional framework for the right to use cash, while respecting the right to privacy. 1.5 The explanatory memorandum states that banknotes and coins denominated in the currency of Slovenia are the only legal tender in Slovenia, and that cash is the only form of public money to which

Predlog za začetek postopka za spremembo Ustave Republike Slovenije z osnutkom ustavnega zakona z dne 23.11.2023.

2 Council Decision 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 Article 50.a(1) of the Constitution as proposed by the draft constitutional law.

4 Article 50.a(2), first sentence, of the Constitution as proposed by the draft constitutional law.

5 Article 50.a(2), second sentence, of the Constitution as proposed by the draft constitutional law. everyone has direct access. It also states that the Eurosystem has a fundamental responsibility, together with the banking sector, to ensure the smooth supply of cash and to facilitate the use of cash in payments by people and businesses. 1.6 The explanatory memorandum further states that in the light of certain statements made by influential persons from the banking and political sectors, there is reason to suspect that the introduction of digital money is intended to give the central bank or national governments complete control over money and over the regulation and conditions that will determine its use. Based on this, the explanatory memorandum states that there would be a justified fear among the proposers of the draft constitutional law that the introduction of digital money and the phasing out of cash is primarily intended for governments to control and monitor the financial data of citizens, meaning that the privacy and financial freedom of the citizens of Slovenia could be under attack. 1.7 According to the explanatory memorandum, citizens have the right to decide of their own free will whether they want to pay in cash. The right to use cash is one of the key rights with which citizens can exercise their freedom in commercial and legal relations. The explanatory memorandum further states that in recent times various proactive steps have been taken leading to the gradual erosion of this right in the form of generally binding legal norms. The explanatory memorandum argues that the inclusion of the right to cash in the Constitution is one way of addressing all attempts to strictly limit and ultimately abolish the right to pay in cash, including the associated right to privacy, for the benefit of society. 1.8 The explanatory memorandum states that a complete abolition of cash would endanger low-income people as well as civil associations that finance their charitable activities by fundraising in cash. The proposers of the draft constitutional law also believe that the preservation of the right to pay in cash is important to contribute to financial literacy among young people. More generally, the right to pay in cash is viewed in the explanatory memorandum in the context of freedom of choice. 1.9 The consultation request states that the draft constitutional law might constitute a proposal which would not be in line with the exclusive competence of the Union as concerns monetary policy for Member States whose currency is the euro under Article 3 of the Treaty.

2. General observations

2.1 Although electronic payment instruments are increasingly used for retail payments in a number of Member States, cash continues to play an important role in society and is still widely used throughout the entire population. The ability to pay in cash remains particularly important for those who, for various legitimate reasons, prefer to use physical money for payments rather than other payment instruments, or do not have access to the banking system and electronic means of payment. These groups include not only elderly people but also people with disabilities, immigrants, socially

vulnerable people, minors and others with limited or no access to digital payment services . 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 currently the only payment instrument that allows everyone to settle a payment transaction in central bank money, which is also settled instantly while, importantly, ensuring privacy. Furthermore, cash could play an important role in the event of a 7 8 disturbance in the payment system and it is robust against cyber-crime . Cash also has an important function as a store of value. The availability and accessibility of cash and its fallback function in case of disruptions to electronic payment systems contribute to trust in the financial system, which is important for the smooth functioning of monetary policy . Against this backdrop, the ECB welcomes the core objective of the draft constitutional law to strengthen the availability and acceptance of cash in Slovenia. 2.2 The ECB is, thus, fully committed to ensuring that euro cash remains available, including in peripheral regions, and accepted in payments throughout the euro area, in line with the Eurosystem’s cash strategy . The specific observations presented below should not be read as undermining the ECB’s commitment to these objectives. Where measures contributing to the protection of euro cash fall within the Union’s exclusive competence for monetary policy, as is the case for legal rules governing the legal tender status of euro banknotes and coins (as explained in paragraph 2.5), the ECB is of the view that such protection should be achieved by rules established in a harmonised manner at Union, rather than at national, level . 2.3 The ECB has the exclusive right to authorise the issue of euro banknotes within the Union, and 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 . The legal tender status of euro coins is provided for in secondary Union law . 2.4 The concept of ‘legal tender’ as 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 of Justice 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

6 See, for example, 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, paragraph 2.1 of Opinion CON/2023/13, paragraph 1.7 of Opinion CON/2023/31 of the European Central Bank of 13 October 2023 on a proposal for a regulation on the legal tender of euro banknotes and coins (OJ C, C/2023/1355, 1.12.2023, ELI: http://data.europa.eu/eli/C/2023/1355/oj), paragraph 2.1 of Opinion CON/2024/1, paragraph 2.4 of Opinion CON/2024/2, paragraph 2.1 of Opinion CON/2024/3 and paragraph 2.1 of Opinion CON/2024/8. All ECB opinions are published on EUR-Lex.

7 See, for example, paragraph 2.1 of Opinion CON/2019/41, paragraph 9.2.1 of Opinion CON/2020/13, paragraph 2.3 of Opinion CON/2021/18, paragraph 2.1 of Opinion CON/2024/1, paragraph 2.4 of Opinion CON/2024/2, paragraph 2.1 of Opinion CON/2024/3 and paragraph 2.1 of Opinion CON/2024/8.

8 See paragraph 2.2 of Opinion CON/2021/32, paragraph 2.1 of Opinion CON/2024/1 and paragraph 2.4 of Opinion CON/2024/2.

9 See paragraph 2.2 of Opinions CON/2024/8 and CON/2024/19.

10 See ‘The Eurosystem cash strategy’, available on the ECB’s website at www.ecb.europa.eu. See also paragraph 1.7 of Opinion CON/2023/31.

11 See paragraph 2.4 of Opinion CON/2014/6, paragraph 2.4 of Opinion CON/2018/41, paragraph 2.3 of Opinion CON/2021/14 and paragraph 2.3 of Opinion CON/2023/43.

12 Article 128(1), first and third sentences, of the Treaty and Article 16, first and third sentences, of the Statute of the European System of Central Banks and of the European Central Bank.

13 Article 11 of Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro (OJ L 139, 11.5.1998, p. 1). value, with the effect of discharging the debt. In clarifying the concept of ‘legal tender’ under Union law, the Court of Justice took into consideration Commission Recommendation 2010/191/EU , which provides useful guidance for the interpretation of the relevant provisions of Union law. Point 1 of Recommendation 2010/191/EU states that, where a payment obligation exists, the legal tender of euro banknotes and coins should imply (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 of Justice, 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 . 2.5 The Court of Justice has clarified that the concept of ‘legal tender’ is a concept of Union law that must be given an autonomous and uniform interpretation throughout the Union . 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 of Justice 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. Furthermore, the Union legislature’s exclusive competence precludes any competence on the part of the Member States in the matter, unless they have been empowered by the Union to do so or for the implementation of Union acts . In this respect, the ECB notes that, on 28 June 2023, the Commission published a proposal for a Regulation of the European Parliament and of the Council on the legal tender of euro banknotes and coins (hereinafter the ‘proposed regulation on the legal tender of euro cash’), which will establish rules on the legal tender of euro banknotes and coins in binding Union secondary law . The explanatory memorandum to the proposed regulation on the legal tender of euro cash states that discussions within the Euro Legal Tender Expert Group (ELTEG) confirmed the existence of legal uncertainty regarding the legal tender of euro cash and differing application of its principles in the euro area . These differences would justify establishing rules on the legal tender of euro cash in a regulation adopted under Article 133 of the Treaty.

14 Commission Recommendation 2010/191/EU of 22 March 2010 on the scope and effects of legal tender of euro banknotes and coins (OJ L 83, 30.3.2010, p. 70).

15 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, EU:C:2021:63, paragraphs 46 to 49.

16 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, EU:C:2021:63, paragraph 45.

17 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, EU:C:2021:63, paragraphs 50 to 52.

18 COM(2023) 364 final.

19 See Opinion CON/2023/31.

20 See section 3, page 4 of the explanatory memorandum of the proposed regulation on the legal tender of euro cash and the final report of ELTEG of 6 July 2022, available on the Commission’s website at www.ec.europa.eu. See also Opinion CON/2023/31.

3. Specific observations

3.1 Constitutional recognition of the legal tender status of cash 3.1.1 Article 50.a(1) of the Constitution, as proposed by the draft constitutional law, recognises the status of cash as legal tender in Slovenia. It thus reproduces directly applicable provisions of Union law, namely Article 128 of the Treaty and Article 11 of Regulation (EC) No 974/98. 3.1.2 The ECB underlines that the reproduction in national law of a provision of Union law that is directly applicable in the legal order of the Member State may create uncertainty both as to the legal nature of the applicable provision and as to the date of its entry into force. This would not align with the uniform application and interpretation of Union law throughout the Union . 3.1.3 Furthermore, the ECB also underlines that the incorporation of some elements of Union law into national law is warranted only in exceptional circumstances for the sake of coherence and to make them comprehensible to the persons to whom they apply . If such exceptional circumstances do exist, the reproduction of elements of directly applicable provisions of Union law should be done precisely, by incorporation or reference , and only to the extent warranted by the exceptional circumstances. However, such exceptional circumstances do not exist if the directly applicable provisions of Union law are sufficiently coherent and comprehensive, making it unnecessary to repeat or reflect them in national law . 3.1.4 In the light of the above, the ECB recommends that Article 50.a(1) of the Constitution, as proposed by the draft constitutional law, which recognises the status of cash as legal tender, should either be deleted or, alternatively, amended to merely refer to the relevant provisions of Union law . 3.2 Constitutional right to make payments in cash 3.2.1 Article 50.a(2), first sentence, of the Constitution, as proposed by the draft constitutional law, specifies that everyone has the right to make a payment for the purchase of goods and the provision of services

21 See judgment of the Court of Justice of 7 February 1973, Commission v Italy, C-39/72, EU:C:1973:13, paragraphs 16 and 17; judgment of the Court of Justice of 10 October 1973, Variola, C-34/73, EU:C:1973:101, paragraphs 9 to 11; and judgment of the Court of Justice of 2 February 1977, Amsterdam Bulb, C-50/76, EU:C:1977:13, paragraphs 5 to 8. See also paragraph 12 of Opinion CON/2005/21, paragraph 2.1 of Opinion CON/2006/10, paragraph 2.4 of Opinion CON/2006/29, paragraph 2.1 of Opinion CON/2007/1, paragraph 2.2 of Opinion CON/2007/43, paragraph 2.3 of Opinion CON/2022/15, paragraph 2.3 of Opinion CON/2023/27, paragraph 2.2.5 of Opinion CON/2023/33 and paragraph 3.3.1 of Opinion CON/2024/1.

22 See paragraph 12 of Opinion CON/2005/21 with reference to the judgment of the Court of Justice of 28 March 1985, Commission v Italian Republic, C-272/83, EU:C:1985:147, paragraph 2.4 of Opinion CON/2022/15, paragraph 2.2.6 of Opinion CON/2023/33 and paragraph 3.3.2 of Opinion CON/2024/1. See a contrario also paragraph 2.2 of Opinion CON/2006/10.

23 See paragraph 2.2 (footnote 6) of Opinion CON/2007/43, paragraph 2.4 of Opinion CON/2022/15, paragraph 2.2.6 of Opinion CON/2023/33 and paragraph 3.3.2 of Opinion CON/2024/1.

24 See paragraph 13 of Opinion CON/2005/21, paragraphs 2.2 and 3.2 of Opinion CON/2006/10, paragraph 2.4 of Opinion CON/2022/15, paragraph 2.2.6 of Opinion CON/2023/33 and paragraph 3.3.2 of Opinion CON/2024/1.

25 See paragraph 2.4 of Opinion CON/2022/15, paragraph 2.3 of Opinion CON/2023/27, paragraph 2.2.6 of Opinion CON/2023/33 and paragraph 3.3.3 of Opinion CON/2024/1. See also principle 16 of the final report of the Euro Legal Tender Expert Group (ELTEG) of 6 July 2022: ‘The Member States should check thoroughly their national legislation for references to legal tender and repeal them or else, make sure that they are a) purely declaratory, referring to the applicable Union provisions as the applicable legal source, b) make no change to the wording of Article 128(1) TFEU or of other applicable EU provisions on the legal tender status of euro cash.’ using cash as legal tender. The draft constitutional law does not envisage any exemptions to this right. 3.2.2 In this respect the ECB recalls that the Court of Justice has held that the status of banknotes denominated in euro as legal tender calls only for acceptance in principle of such banknotes as a means of payment, not for absolute acceptance . The Court of Justice held that 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 in the exercise of their own powers, to regulate the procedures for settling pecuniary obligations, whether under public law or private law, provided, in particular, that the legislation does not affect the principle that, as a general rule, it must be possible to discharge a payment obligation in cash. This also includes that Member States may introduce stricter rules, which will strengthen the mandatory acceptance of euro cash in their territory, in the exercise of their own powers, such as the organisation of their public administration or in the field of consumer protection. The Court of Justice has also held that one must assess the objective and content of a national law measure that provides for an obligation to accept euro cash to determine whether that measure has been adopted within the framework of the Member States’ own competences . 3.2.3 It must therefore be considered whether Article 50.a(2), first sentence, of the Constitution, as proposed by the draft constitutional law, in the light of its objective and content, establishes legal rules governing the status of legal tender of euro banknotes, an area of exclusive competence of the Union under Article 133 of the Treaty, or is a measure taken in the exercise of a competence of the Member States. 3.2.4 Article 50.a(2), first sentence, of the Constitution effectively sets out the mandatory acceptance of cash as a means of payment , which is connected to the constitutional enshrinement of the legal tender status of cash under Article 50.a(1) of the Constitution, as proposed by the draft constitutional law. This can be seen from the wording of the provision , and from the fact that the right to pay in cash is recognised in respect of everyone and without any exemptions. It therefore appears that the content and objective of Article 50.a(2), first sentence, of the Constitution, as proposed by the draft constitutional law, is to ensure the acceptance of cash as legal tender as a right of general application and without any exemptions. The ECB thus understands that, in the light of its objective and content, Article 50.a(2), first sentence, of the Constitution, as proposed by the draft constitutional law, does not regulate the procedures for settling pecuniary obligations in the exercise of national powers but rather appears to regulate the status of euro cash as legal tender. 3.2.5 Furthermore, it must also be considered whether Article 50.a(2), first sentence, of the Constitution, as proposed by the draft constitutional law, laying down the mandatory acceptance of euro banknotes

26 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, EU:C:2021:63, paragraph 55.

27 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, EU:C:2021:63, paragraphs 56 to 58. 28 In accordance with Article 15 of the Constitution the manner in which human rights and fundamental freedoms enshrined in the Constitution are exercised may be regulated by law whenever the Constitution so provides or where this is necessary due to the particular nature of an individual right or freedom, which means that specifics may be regulated in the law. 29 Article 50.a(2) of the Constitution, as proposed by the draft constitutional law, expressly mentions the right to pay using cash as legal tender. 30 See paragraph 3.2.2. and coins, which the right for everyone to make payments in cash seems to protect, can be said to reproduce provisions of Union law . From this perspective, it must be stated that Article 50.a(2), first sentence, of the Constitution, as proposed by the draft constitutional law, uses significantly different terms than those used in Union law. According to Recommendation 2010/191/EU, on which the Court of Justice relied when interpreting Article 128(1) of the Treaty and Article 11 of Regulation (EC) No 974/98 , the first defining element of the concept of legal tender is the mandatory acceptance of euro banknotes and coins where a payment obligation exists . In the same vein, it is clear from the prominence given to the provision on this issue in the proposed regulation on the legal tender of euro cash, which is currently being negotiated by the co-legislators, that mandatory acceptance of euro banknotes and coins is one of the key elements of the legal tender status of euro banknotes and coins . Thus, to the extent that Article 50.a(2) of the Constitution, as proposed by the draft constitutional law, uses wording different from its legal sources in Union law it potentially creates regulatory content of its own, which would not be in line with the Union’s exclusive competence in matters of monetary policy for the Member States whose currency is the euro. 3.2.6 Consequently, as stated in paragraph 3.1.4 regarding Article 50.a(1), the ECB recommends that Article 50.a(2), first sentence, of the Constitution, as proposed by the draft constitutional law, which establishes that everyone has the right to make a payment for the purchase of goods and the provision of services using cash as legal tender, should be deleted. Alternatively, if the intention of the draft constitutional law was to reproduce Union law, the provision should either be deleted or amended to merely refer to the relevant provisions of Union law. 3.3 Constitutional right to perform cash transactions at a bank 3.3.1 Article 50.a(2), second sentence, of the Constitution, as proposed by the draft constitutional law, provides for the imposition of a targeted obligation on banks and branches of foreign banks to offer the possibility to conduct cash transactions. 3.3.2 The ECB welcomes the core objective of strengthening the availability of cash in Slovenia. Sufficient and effective access to cash is necessary to preserve the effectiveness of the legal tender status of cash. If there is neither sufficient nor effective access to cash, it will not be available as a means of payment. In this regard, the proposed regulation on the legal tender of euro cash includes an obligation for Member States to ensure sufficient and effective access to cash throughout their territory . 3.3.3 However, the ECB is of the view that the scope and extent of the strengthened constitutional protection of the right to perform cash transactions at banks and branches of foreign banks should be clarified. For example, it is not fully clear which operations (e.g. dispensing euro banknotes and

31 See paragraphs 3.1.2 and 3.1.3. 32 See judgment of the Court of Justice of 26 January 2021, Hessischer Rundfunk, C-422/19 and C-423/19, EU:C:2021:63, paragraphs 45 to 48. 33 See point 1(a) of Recommendation 2010/191/EU. 34 See Article 4(1) of the proposed regulation on the legal tender of euro cash. 35 The ECB has consistently welcomed legislative proposals aimed at ensuring access to cash in euro area Member States. See, for example, Opinion CON/2022/40, Opinion CON/2023/25, paragraph 3.4.2 of Opinion CON/2024/1, paragraph 2.3 of Opinion CON/2024/3 and paragraph 2.3 of Opinion CON/2024/8. See also paragraph 1.2 of Opinion CON/2023/31, in which the ECB particularly welcomes the measures laid down in the proposed regulation on the legal tender of euro cash regarding the need for Member States whose currency is the euro to ensure sufficient and effective access to cash. coins by debiting a payment account, receiving deposits of euro banknotes and coins in order to credit a payment account) would fall under the scope of the cash transactions to be offered. It is also not clear whether under the proposed constitutional regime banks would have to perform cash transactions for anyone or only for their clients that hold a payment account, or whether there are further conditions and limitations on the right to perform cash transactions in a bank or branch of a foreign bank . In this context, the costs of implementation of obligations for credit institutions related to cash transactions would need to be adequately accounted for. The ECB therefore recommends that the conditions applicable to the right to perform cash transactions in a bank or branch of a foreign bank pursuant to Article 50.a(2) of the Constitution, as proposed by the draft constitutional law, should be properly specified. 3.4 Considerations in relation to the digital euro 3.4.1 The ECB has clearly underlined that the digital euro would complement, rather than replace, cash as another form of central bank money with legal tender status available to the public . The legal tender status of the digital euro would promote its wide acceptance as a means of payment in respect of all digital payments throughout the euro area. The digital euro would also offer a higher level of privacy and data protection than other current electronic means of payment. 3.4.2 On 28 June 2023, alongside the proposed regulation on the legal tender of euro cash, the Commission published a proposal for a Regulation of the European Parliament and of the Council on the establishment of the digital euro (hereinafter the ‘proposed regulation on the digital euro’). The proposed regulation on the digital euro states that the digital euro should complement euro banknotes and coins and should not replace the physical forms of the single currency and that, as legal tender instruments, both cash and digital euro are equally important . 3.4.3 On 31 October 2023, the ECB adopted its opinion on the proposed regulation on the digital euro . In its opinion, the ECB strongly welcomed the goal of establishing a framework facilitating the possible introduction of a digital euro that would ensure that central bank money continues to play a key role, side by side with commercial bank money payments, in maintaining a well-functioning payment system and financial stability, and ultimately trust in the euro currency: the ‘monetary anchor’ role of central bank money . Furthermore, the ECB also welcomed, in particular, that the

36 See also, in this respect, paragraphs 2.5 to 2.7 of Opinion CON/2023/25. 37 See paragraph 1.1 of Opinion CON/2023/31 and paragraph 1.2 of Opinion CON/2023/34 of the European Central Bank of 31 October 2023 on the digital euro (OJ C, C/2024/669, 12.1.2024, ELI: http://data.europa.eu/eli/C/2024/669/ojof). 38 COM(2023) 369 final. 39 See recital 6 of the proposed regulation on the digital euro. 40 Opinion CON/2023/34. 41 See paragraph 1.1 of Opinion CON/2023/34. proposed regulation on the digital euro aims at ensuring a high degree of privacy and data protection for users of the digital euro . This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 24 July 2024. [signed] The President of the ECB Christine LAGARDE

42 See paragraph 2.3 of Opinion CON/2023/34.