In the shadow of the design for new euro-banknotes lies another question: what is the future of cash? With digital payments increasing and the use of cash slowly declining it raises the question of the role of cash in our payment future. Despite the growth of digital payments, access to cash and the ability to use it as a means of payment remain important. Certain groups, including elderly people, migrants and people on low incomes, remain more dependent on cash than others. The disappearance of cash may therefore disproportionately affect their ability to participate in economic life and, by extension, society more broadly. A decline in cash acceptance may therefore exacerbate existing forms of social and economic exclusion. Against this background, the EU’s attempt to safeguard the availability and acceptance of cash is understandable.

The EU Commission has proposed a Regulation on the legal tender of euro banknotes and coins to protect the availability and usability of cash. It reiterates the status of cash as legal tender and contains safeguards regarding the availability and level of acceptance of the legal tender. Article 4(2) establishes, as a general rule, that payees must accept euro cash. Article 5 provides two exceptions, including where a refusal is made in good faith and based on legitimate and temporary reasons. Cash may also be excluded where the payer and payee have agreed on another means of payment prior to the transaction. According to the proposal’s recitals such an agreement may, include a unilateral ex ante exclusion of cash, for example through the famous “no cash” sign in the window. To prevent “no cash” signs becoming the rule rather than the exception, article 7 requires Member States to monitor the acceptance of cash and to ensure that its acceptance remains sufficient and effective throughout their territory. 

State policies to achieve acceptance will have to balance the different interests of citizens and businesses. The case law of the Court of Justice EU provides a useful starting point for understanding this balance. In Dietrich and Häring v Hessischer Rundfunk, the Court considered whether the status of euro banknotes as legal tender precluded national rules restricting the possibility of satisfying a payment obligation in cash. The Court did not interpret legal tender as requiring the unconditional acceptance of cash. It held that restrictions may be permissible where they pursue a public-interest objective, are appropriate for achieving that objective and do not go beyond what is necessary. The other proviso of the Court was that alternative lawful means of payment remain available. The alternative is generally not an obstacle for states to consider, without accepting other means of payment such as cards, businesses will likely go bankrupt.  The more difficult consideration is when public interest requires exceptions to the general acceptance of cash. To bring the difficulty of public interest into perspective, let’s consider a petrol station.

The roadside petrol station problem

Consider a petrol station situated alongside a remote road. Regularly accepting cash means that potentially significant amounts of money accumulate on the premises (especially with current gas prices). More cash available increases the risk of a (violent) robbery and threatens the safety of employees. Compare this with a petrol station in a busy urban area or well secured business district, situated closer to a police station. Although both businesses accept the same currency and provide broadly the same service, the security implications of mandatory cash acceptance may be considerably different. 

Arguably exceptions to a mandatory acceptance policy can be made for those locations (relatively) far removed from a police station. As securing safety for the people on the premises and preventing violent crime is within the domain of the public interest. The first challenge with an exception for remote locations, however, is that this policy would encourage all roadside petrol stations to refuse cash. The result is cash is accepted in urban, but not the non-urban environments. The decrease of cash availability in non-urban environment is gradually occurring and has serious economic consequences for the vulnerable. Thereby such a measure on refusal in remote locations would cause a discrepancy with the Regulation’s aim to have cash acceptance coverage at both urban and non-urban environments. This challenge is not limited to roadside petrol stations as the same applies to a village supermarket versus those located in busy shopping areas. Theoretically it can be argued that cash should thus always be accepted in all areas, and the premises will have to increase their security measures to prevent a robbery. Such measures would be highly costly for businesses, the results might be price increases that make goods and services less financially available for the vulnerable, who are less likely to be able to avail of a car and drive to a cheaper competitor. This highlights another difficulty with cash: competition. 

Tale of two supermarkets 

To clarify how cash can distort competition, compare two supermarkets in a similar area. Cash acceptance affects how a business organises its operations and may require expenditure on security, cash handling and staffing. Not accepting cash can decrease costs and allow a supermarket to reduce its prices. When the group of potential customers who rely exclusively on cash is small enough, excluding cash provides a competitive advantage. The business will be able to gain more card paying customers by its price reductions than that it loses by excluding cash consumers. When, almost inevitably, both supermarkets refuse cash; the societal groups still reliant on cash lose. This is the economic phenomenon of private firms refusing to internalize social costs, which generally requires law to prevent the social costs from occurring.

A simple solution to this problem is to generate a policy that includes mandatory acceptance of cash for all stores. This policy would ensure acceptance for those reliant on cash without distorting competition. A blanket policy of mandatory acceptance, however, endangers other firms with higher risks of robbery.  Neither a policy of mandatory acceptance, nor one of free markets will provide the optimal societal result.  

No perfect solution?

There is no simple solution to define what the acceptance policy should be. States face the dilemma of preventing socio-economic exclusion of those reliant on cash. There are some who argue that the digital euro (or Central Bank Digital Currency) is the solution for those reliant on cash. It, however, seems counterintuitive to argue that the lack of cash availability should be solved by the digital euro. Because it was the introduction of the digital euro, that sparked the debate on ensuring the need to preserve cash. It seems this discussion is thereby far from concluded.

Annelieke Mooij is an assistant professor of administrative and constitutional law at Tilburg Law School. She is interested in law and technology and writes on algorithms, virtual reality and FinTech.