John Rhys James March 2016
When considering the possibility of a cash ban in the Eurozone, one must be aware that the European Central Bank (ECB) and national monetary authorities find themselves in a quite different legal situation to Central Banks and national monetary authorities anywhere else in the world. This is because of the unique legal framework which has been developed during the process of European Integration and which is set out in the Lisbon Treaties (Treaty for European Union TEU and Treaty on the Functioning of the European Union TFEU). These treaties define the legal authority conferred upon the EU institutions such as the European Central Bank and sets limits upon the decision making ability of national institutions.
In a conventional political system, a central bank administering a national currency is accorded powers through primary legislation drawn up in the name of the sovereign (constitutional law or parliamentary law). These powers permit it to make regulations which have legally binding effect. These regulations may be referred to as derived or subordinate legislation since their legally binding authority is derived from legal texts of primary nature drawn up by the sovereign authorities: that is to say by the sovereign people or the sovereign parliament. The sovereign authorities in a conventional constitutional framework always retain the power to direct and limit the power of the subordinate executive institutions by amending the text of the relevant acts or parliament or of the constitution.
In the EU, as is made clear by article 13(2) of the Treaty for European Union (TEU) the powers exercised by the institutions of the EU, of which the ECB is one such, are of a secondary and limited nature, having been conferred on them by the sovereign nations who have formulated and ratified the Lisbon Treaties.
2. Each institution shall act within the limits of the powers conferred on it in the Treaties, and in conformity with the procedures, conditions and objectives set out in them.
The extraordinary peculiarity of the EU legal framework lies in the fact that the subordinate legislation produced by the EU institutions has legal precedence over all national law, whether primary or subordinate. Although this principle is widely known, its true implications are not correctly appreciated, nor are many people aware of how this principle came into existence. At a time when national political movements are considering ways of blocking a eurozone cash ban (as for example in Austria where certain parties are calling for a constitutional amendment guaranteeing citizens´ rights to own and use cash), detailed consideration of the legal framework which could be used to implement a cash ban is essential.
For clarification of the principle that EU law overrides national law, no better source can be found than the text published by the Office for Official Publications of the European Communities, the publishing house of the institutions of the European Union. Admittedly this text provides us with the EU´s own view of the situation, but it is undoubtedly an analysis shared by the vast majority of lawyers, judges and politicians in the EU as a whole
The full text can be found at
and it should be read in its entirety, The most important passages however are as follows
The precedence principle guarantees the superiority of European law over national laws. It is not inscribed in the Treaties, but has been enshrined by the Court of Justice of the European Union (CJEU).
The CJEU enshrined the precedence principle in the Costa versus Enel case of 15 July 1964. In this case, the Court declared that the laws issued by European institutions are to be integrated into the legal systems of Member States, who are obliged to comply with them. European law therefore has precedence over national laws. Therefore, if a national rule is contrary to a European provision, Member States’ authorities must apply the European provision. National law is neither rescinded nor repealed, but its binding force is suspended.
The precedence of European law over national laws is absolute. Therefore, it applies to all European acts with a binding force, whether emanating from primary or secondary legislation.
The Court of Justice has ruled that national constitutions should also be subject to the precedence principle. It is therefore a matter for national judges not to apply the provisions of a constitution which contradict European law.
This extraordinary doctrine has never been declared to be legally binding in a Treaty ratified by the member states. An attempt was made to include such a declaration in Article 6 of the Rome Treaty Establishing a Constitution for Europe 2004, but this treaty was rejected by the French and Dutch people in referenda in 2005. It has therefore no legally binding force derived from primary legislation, and must therefore be considered a political convention.
Now conventions, as the British experience has shown, can be harder to dislodge or amend than written legal documents, as they express not dry legal guarantees but embody psychological expectations as to what behaviour is considered necessary for the maintenance of social and political cohesion.
Nevertheless there is no treaty obligation which compels a member state which feels that a vital national interest is compromised by European law, from obeying that EU law. There have indeed been famous occasions when EU law has been ignored by states, particularly Germany: for example when France and Germany broke the Maastricht criteria, the breaking of the no-bailout-clause during the sovereign debt crisis and most recently Germany´s unilateral immigration policy in contravention of the Dublin 3 Agreement on asylum.
Could a national government therefore ignore a regulation issued by the ECB or the EU Commission which bans cash? (Whatever that term may mean, for it is used loosely in public debate and should be more accurately defined).
Sadly national governments and national banks that wish to block a cash ban find themselves standing on a very weak legal leg. In the sovereign debt and immigration crises, the EU was trying to impose EU regulation on areas that remained largely matters of national policy: the emission of national debt, implementation of national immigration laws. In the monetary arena however the member states of the Eurozone have no national policy that they can implement against the will of the institutions of the EU, in this case the ECB, for the simple reason that the Eurozone members no longer have national currencies to fall back on.
The most drastic and direct means of reasserting national monetary policy would be to leave the Euro and reintroduce a national currency. Unfortunately, the Lisbon treaty does not provide any legal mechanism which would permit a Eurozone member to leave the Euro, but remain in the EU. Such considerations go beyond the scope of this essay.
A second way would be to amend the primary legislation which confers powers on the ECB. This would however require unanimity amongst all 27 Lisbon treaty signatories. As long as there were one government that advocated a Eurozone cash ban, such an amendment would remain unachievable.
Barring these two extremely disruptive moves, member states will be forced to come to terms with the legal consequences of their ratification of the Lisbon treaties. The plain fact is that they have transferred most of their sovereign power and authority in matters of monetary policy to the ECB.
The TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION informs us that:
1. The Union shall have exclusive competence in the following areas:
(c) monetary policy for the Member States whose currency is the euro;
The European Central Bank shall have the exclusive right to authorise the issue of euro banknotes within the Union. The European Central Bank and the national central banks may issue such notes. The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union.
2. Member States may issue euro coins subject to approval by the European Central Bank of the volume of the issue.
The ESCB shall be governed by the decision-making bodies of the European Central Bank which shall be the Governing Council and the Executive Board.
When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, from any government of a Member State or from any other body.
The Union institutions, bodies, offices or agencies and the governments of the
Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the European Central Bank or of the national central banks in the performance of their tasks.
Each Member State shall ensure that its national legislation including the statutes of its national central bank is compatible with the Treaties and the Statute of the ESCB and of the ECB.
PROTOCOL ON THE STATUTE OF THE EUROPEAN SYSTEM OF CENTRAL BANKS (ESCB) AND OF THE EUROPEAN CENTRAL BANK
14.3. The national central banks are an integral part of the ESCB and shall act in accordance with the guidelines and instructions of the ECB. The Governing Council shall take the necessary steps to ensure compliance with the guidelines and instructions of the ECB.
14.4. National central banks may perform functions other than those specified in this Statute unless the Governing Council finds, by a majority of two thirds of the votes cast, that these interfere with the objectives and tasks of the ESCB.
To put it in a nutshell, the governments that negotiated and signed the Lisbon Treaties have committed themselves in writing in a international agreement to
Transfer their sovereign authority in monetary matters almost in its entirety to an external central bank which has the exclusive right to issue coins and cash in the only legal currency permissible in the eurozone
To refrain from seeking to influence the members of the decision-making bodies of the European Central Bank
To ensure that its national legislation including the statutes of its national central bank is compatible with the Treaties and the Statute of the ESCB and of the ECB.
Within this legal framework it is hard to see how a national Government can legally prevent an ECB determined to ban the use of cash within the national borders of Eurozone member states from doing so, unless that government is prepared to leave the Eurozone unilaterally and risk being expelled from the EU.
Despite the fact that the advocates of a Eurozone cash ban apparently have all the necessary legal trumps in their hand, questions still need to be asked about the practicability of such a ban and more detailed research will be needed to provided satisfactory answers to this questions. Amongst such questions are the following:
The ECB can obviously forbid the issuance of new Euro banknotes and coins. But can the ECB order a government or a national bank to withdraw euro cash already in circulation if the national authorities are opposed to such a policy?
Can the ECB declare that Euro cash which was issued as legal tender with the same monetary value as digital Euros will from a particular date be deemed to be officially worthless?
Can the ECB make to possession of Euro Cash, which was formally legal tender, illegal?
If so, what does this mean for the holders of D-Marks, Schillinge, Gulden.
Studies show that there are still vast amounts of the pre-Euro currencies in private hands.
If the ECB declares Euro cash to be worthless, will the public accept this pronouncement? Might not EU citizens continue to consider a 10 Euro note to be worth 10 Euro and use Euro cash continue to operate as a private currency outside the banks?
What are the tax implications for people who receive worthless pieces of coloured paper in exchange for performing a useful task?
Might not Euro cash, which will after all be a monetary agent that will experience quantative tightening due to wear and tear, not command a premium to digital Euros?
What regulations have been set down and ratified regarding the ownership, buying, selling and exchanging of gold bullion, the ultimate form of cash, within the borders of the EU or the Eurozone?
One thing is for sure: the moment of truth is approaching fast.
John Rhys James
Was born in Great Britain. Following a degree, was in Political Science at the University of Bristol, where the focus of his studies was on the political systems of Eastern and Western Europe in the post war period, where he studied at the University of Music, Vienna. For 25 years he has been active as a musician and cultural manager in Europe, working for institutions such as the Vienna State Opera, Vienna Volksoper, Bayreuth Festival and Salzburg Festival. He is currently a lecturer at the University of Arts and Music, Vienna. Alongside his artistic work he has maintained a keen interest in political and economic developments and has lectured and written on British Common Law, constitutional Law and comparative European legal systems as well as the influence of history on contemporary political developments in Europe. He has been a member since its inception of the Vienna Institute for Wertewirtschaft, an institute devoted to promoting and developing the philosophical tradition emanating from Carl Menger and Ludwig von Mises.