Saturday, June 22, 2013

Spend your dye-stained euros in Cyprus

For reasons of legal technicalities, the government of Belgium has to get European Central Bank (ECB) approval for new regulations which require currency handlers in Belgium to take out of circulation euros that look like there were stained by counter-theft measures now used in most large shipments of cash. The problem is that such notes are still legal tender. So some legal gymnastics ensues --

Nevertheless, the ECB notes that neutralised euro banknotes retain their legal tender status and that this has been acknowledged by the European Commission. In this respect, the requirements and prohibitions introduced in the draft law by the amendments would affect the legal tender status of presumably neutralised banknotes. In addition, they would effectively introduce limitations on cash payments in relation to the settlement of cash transactions where such euro banknotes are used in good faith to this end. 

Recital 19 of Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro 12 states that limitations on payments in notes and coins, established by Member States for public reasons, are not incompatible with the status of legal tender of euro banknotes and coins, provided that other lawful means for the settlement of monetary debts are available. The ECB acknowledges that: (a) such other lawful means for the settlement of monetary debts, other than neutralised euro banknotes, are available in Belgium; and (b) the draft law’s objective of enhancing public security by reducing the risk of criminals’ being able to put into circulation neutralised euro banknotes in relation to a crime qualifies as a public reason outweighing the impact of the limitations on cash payments.

One strange thing is that while the ECB legal department bends over backwards to ensure that cash that might have been involved in a robbery remains legal tender in Belgium, Cyprus still has significant currency controls -- technically on the banking system rather than on cash, but in a modern economy, you can't have one without the other. Given the ECB's logic in the Belgium case, does this mean that it would be harder for Cyprus to bring in restrictions on the use of dodgy-looking euro cash since alternative forms of payment are more difficult?