While I was behind enemy lines at Security Printers 2016, I picked a copy of a report from Guillame Lepecq’s Cash Essentials.
One section of the report talks about the European Commission’s 2010 recommendation on Legal Tender, which I’ve written about before.
A bank person mentioned to me that they think the European Commission’s recommendation on legal tender (22nd March 2010) is, as he put it, “strange and undesirable”.
After I’d taken the time to read and reflect on the recommendation, I posted a more sober and balanced perspective, explaining why the recommendations are wrong.
the European commission published a bonkers recommendation concerning the legal tender status of the euro
One of the main reasons that I thought that the recommendations were bonkers is because they have no strategic context and no economic purpose. They are wholly political.
As Norbert Bielefeld of the European Central bank noted in his excellent article “Dare to be bold: electronic legal tender is an option” in the EPC newsletter back in May 2011, the recommendation flatly contradicts the European Union’s strategic objective to switch to electronic payment methods in order to reduce the total social cost of payments across the member states
So, as you can imagine, after reading Cash Essentials I thought I just had to blog something about these recommendations again! The Cash Essentials report sets out the “guiding principles” of the recommendation. Here are the first four, all of which are, in my opinion, wrong.
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Legal tender: mandatory acceptance of banknotes and coins, for full face value with the power to discharge debts. This is wrong because no-one should be forced to accept payment in anything. Legal tender, in English Law at least, does not mean what people think it means. It does not mean that shops have to accept cash: it means that if you incur a debt, you can settle it with central bank cash and have the debt discharged. If a shop wants to accept cowrie shells, Bitcoins and Avois that is up to them: you don’t have to do business with them and they don’t have to accommodate your fivers.
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Can can only be refused for “good faith” reasons (e.g., retailer has no change).This is wrong because even if the mandatory acceptance of principal one exists, there is no way to determine what “good faith” means.
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The acceptance of high denomination banknotes should be “the rule”. This is wrong because of principle two. Just as “good faith” is meaningless, so “the rule” is meaningless. And that’s is not even taking into account that it is wrong for society to have these high denomination notes in circulation.
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No surcharges on cash payments.This is wrong because retailers should be allowed to surcharge for whatever they want. If the Commission wants to single out the payment that has the lower total social cost and make that the benchmark, then it is PIN debit. The rule should be no surcharging for PIN debit but allow surcharging for everything else.
I won’t go on. Except to talk about the later recommendation about coins for a moment. Coins? Yes, the recommendation goes on to insist that retailers accept the 1- and 2-euro cent coins and that governments do not allow “rounding". To understand why anyone would make such a baffling recommendation, you have to understand that the euro is for some people (e.g., the Commission) a political project. To retailers, and to most other people, the small coins are pointless and a waste of time and effort. But the to Commission they represent an aspect of the European family and to refuse them is a slap in the face to political union. There are people out there who think that producing the smallest denomination coins is a ridiculous affectation and it may be time to stop: if there are none of these coins in circulation then retailers won’t have to accept them so the Commission’s principle is redundant.
Mark Carney, the Governor of the Bank of England, has suggested that the 1,200-year-old British penny could be scrapped.
From After 1,200 years, could it really be time for the penny to be dropped?
Actually, I’ve suggested it more than once and even tried to get a No. 10 petition about it going, but just because he’s the Governor of the Bank of England his plagiarised proposal gets all the attention. Meanwhile, across the Irish Sea, the Commission’s recommendation appears to have fallen on deaf ears.
Some 126 million coins have been taken out of circulation since a scheme was introduced to round shoppers' bills up or down.
Ireland can do it, why can’t we? Minting one penny and two penny, one cent and one euro cent coins is insane. The European Commission might stand against rounding, but even in that last redoubt of currency conservatism, the United States, the writing is on the wall and rounding is taking root. For one thing, they are a waste of time.
According to a study undertaken by the National Association of Convenience Stores and Walgreens, handling pennies adds 2 to 2.5 seconds to each cash transaction.
[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]
Who can blame retailers..
[Ken Martin decided] to stop using the coins in his eleven Bay Area stores in June 2011… Although Mike's Bikes and Cheeseboard Pizzeria still accept pennies as payment, neither store hands them out in change. Instead, both stores round transactions down in the customer's favor to the nearest nickel. Although the stores lose a little from the rounding, Adams said it's ultimately worth it: "For us, it's a net savings. It's more convenient, and the time it takes to roll the pennies and deal with them makes it worth it."
[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]
It is clear that, even to those who want to promote the use of cash over electronic alternatives, that the small coins have to go. It is impossible to understand why any most is wasted on their development and manufacture.
The Swedish central bank’s recent release of a new line of bills and coins struck her as foolish. “It’s trying to be more like the E.U.—two-kronor coins and things like that,” she said. “But it’s, like, why? What’s the point? No one uses it anymore.”
Whatever the European Commission might think, I don’t think retailers should be forced to accept cash at all, but if they are, there’s no reason why they should accommodate the extremes: the 1- and 2- cent coins, the €200 and €500 notes. Let them wither or, better still, just get rid of them altogether.
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