Restricting the Use of Cash in the European Monetary Union: Legal Aspects

Clear signs are visible that the use of cash is being increasingly restricted inside the European Monetary Union (EMU). The main argument for this drive was cost-effectiveness. The handling of cash was declared expensive and risky, mainly by economists. Empirical evidence is, however, scarce, and in fact tends to show the opposite; at least for small amounts of money to be paid. More recently, the pressure has been augmented considerably. Part of it is the phasing out of the 500 € banknote. This time, the argument is fighting criminal activities and, in particular, terrorism. More likely, the true reason is to make the “unconventional” measures of the European System of Central Banks (ESCB) more effective: negative nominal interest rates and inflation targeting. Several legal concerns exist in this context. The total abolition of cash would neither be compatible with EU law nor with German constitutional law. Although the wording of Article 128 TFEU only empowers (“may”) the European Central Bank (ECB) to issue euro-banknotes, it presumes the existence of cash. The ECB does not have the power to abolish it. The same result may be derived from Article 20 paragraph 1 Federal Constitution of Germany (“social state”). Restricting the use of issued banknotes and coins denominated in euro would be incompatible with their property of being legal tender following Article 128 TFEU. It is highly questionable whether such measures would be in conformity with the principle of proportionality enshrined in Article 1 paragraph 1 and 4 TEU and protocol no 2 of the primary law of the EU. The obligation to accept cash denominated in euro follows already from its virtue as legal tender; also for government entities. In addition, this result also follows from the secondary law of the EU: Commission decision 2010/191/EU of 22 March 2010; notwithstanding recital 19 of Regulation (EC) 975/98 that is legally not part of the norm.