The International Mint Industry Association (IMIA) has issued a position paper on the European Commission’s (EC) draft regulations on the legal tender of euro banknotes and coins.
The paper also refers to the EC’s proposals about a possible digital euro.
Although broadly supportive, the IMIA highlights a number of reservations.
The current status of euro cash does not guarantee reliable and universal acceptance or wide and easy access. One result of this is that the European cash infrastructure is being eroded. Consequently, the IMIA agrees that clarification is needed.
Cash today has already achieved what a digital euro will need to achieve if it is to act as complementary digital central bank money. Cash is trusted, widely adopted for transactions and as a store of value. It is exchangeable on a one-to-one basis with commercial bank money, thereby fulfilling that value anchor role that delivers financial stability and resilient payments.
Cash also, almost effortlessly, gives individuals financial autonomy and privacy, protecting personal data.
Direct payment can be made without the need for any service from a third party. It offers universal inclusivity and an unlimited store of value which allows people independence, autonomy, agency and freedom.
To act as a complement to cash, a digital euro will need support if it is to provide a digital money anchor role for commercial bank money.
The EC proposals do not offer a consistent approach and level playing field for cash and digital payments across regulations, enforcement and institutional support. This brings a risk of the EC being seen, as well as in fact, to encourage a digital euro that will crowd out and replace cash.
‘Ex ante exclusion of cash’, ie. the unilateral refusal to accept payments in cash without a bilaterally and individually negotiated agreement such as a ‘no cash’ sign on a shop, is not forbidden in the cash proposal. But it is in the digital euro proposal.
The only exclusions for a digital euro are for payments to micro enterprises and private citizens. Otherwise, the unilateral exclusion of digital euro payments is prohibited outright across the eurozone and non-acceptance will be penalised. Recital 11 states that ‘to ensure the effective protection of the legal tender status of the digital euro as a single currency throughout the euro area, and the acceptance of payments in digital euro, rules on sanctions for infringements should be introduced and applied in the Member States.’
The digital euro proposal refers to its role delivering financial inclusion. This is not mentioned in the cash proposal.
Member states are obliged to intervene with remedial measures when a level of non-acceptance of payments in cash undermines the principle of mandatory acceptance. This implies that the universal exclusion of payments in cash is not prohibited as long as the refusal of cash is not ‘widespread and structural.’ Member states must monitor the extent of ‘no cash’ policies and use regulatory measures if they are too widespread. The cash proposal is silent on whether it includes cash payments at the point of sale, person to government, person to local government, person to government funded institution, or temporary point of sale locations such as festivals.
In contrast, Recital 4 in the digital euro proposal is explicit in saying that ‘the digital euro should support a variety of use cases of retail payments. Those use cases include person to person, person to business, person to government, business to person, business to business, business to government, government to person, government to business, and government to government payments.’ Currently the monitoring of cash acceptance lacks frequency and systemic pro-active data gathering. The
IMIA recommends that the EC requires investment in raising public awareness about both the right to pay in cash as the point of sale and how to complain if there is a problem. The IMIA would like vending machines and self-service check out tills to be included in this. It also suggests mystery shoppers should be used to establish what is really happening.
The EC proposal sets a level of acceptance as a ‘common indicator’, but can a member state take action if the level is above that indicator? What is to stop the common indicator becoming an acceptable minimum?
Recital 6 also refers to a series of indicators, without clarification. Does this mean that there will be different levels for different sectors? This could have an impact on payment choice and privacy. On what basis will the EC decide where to set the level?
While the IMIA welcomes the EC’s proposals on access, it draws attention to a number of areas. Access to cash should be ‘sufficient’ and ‘effective’. It does not mention ‘convenient’. In contrast the digital euro text says access to it should be ‘universal, affordable and easy’.
Common indicators are laid out, for example citizens should live within 3 km of an ATM. While this may be a ten minute drive in a car, what happens when a citizen doesn’t have a car? Is 3 km still regarded as convenient?
Again, will the indicator become a minimum standard? Will member states be able to require the distance travelled to reach an ATM to be less? The IMIA argues that the monopoly bestowed on financial institutions to create commercial money places on them an obligation to maintain the ability of account holders to deposit and access cash.
The monitoring proposed is suggested as being annual. There is a real risk that this frequency is too long, and reporting will not happen in sufficient time to prevent the dismantling of euro cash infrastructure.
While the IMIA agrees that the current legal tender status of cash does not guarantee acceptance of or access to cash, and that the legal tender status of a digital euro must be clarified, it is concerned by the differences in treatment of these two versions of central bank money.
Cash is a wonderfully successful payment instrument established over centuries. It needs safeguarding both in its own right and to ensure that while a digital euro builds the trust of citizens, fully functioning choice is maintained. Cash needs equal treatment to that being proposed for a digital euro.
