I refer to the European Union Commission proposal for a Regulation on the legal tender of euro banknotes and coins[1] (hereinafter, proposal for a Regulation) to put in evidence its critical profiles.
1 – The essential prerequisite of the proposal for a Regulation which it does not contain
The proposal for a Regulation defines the legal tender of the euro with the purpose to give it “an autonomous and uniform interpretation throughout the European Union”.[2]
The legal tender is the ability that the law gives to a currency to extinguish pecuniary obligations.[3]
The intention to standardize the differences that the concept of legal tender of a currency can have in the national law of the member Countries of the European Union is acceptable.
However, this has an essential prerequisite: that the euro has an effective underlying asset that gives it value.
Otherwise, the euro is a “fiat currency” – that is to say a currency backed by nothing – and its value is that of the paper, the ink and the cost of printing for banknotes, the value of the metal and the cost of minting for coins.
Such a euro cannot pay any pecuniary obligation.
Therefore, the definition of the concept of legal tender to give it “an autonomous and uniform interpretation throughout the European Union”[4] would be completely useless.
2 – The proposal for a Regulation must state which is the effective underlying asset of the euro[5]
What we have just said in paragraph 1 above leads us to talk about the underlying asset.
The underlying asset is what gives the currency its value and can be made up of any economic quantity.
For example, the underlying asset of a metallic coin made of gold is given by the value of the gold with which the coin was minted.
The underlying asset may also consist of an economic quantity that the currency does not materially incorporate into itself.
Here are some examples.
In a context in which the national government prints banknotes, the underlying asset of the banknotes issued during a year can be given by the wealth produced in that nation[6] in the year preceding the creation of the banknotes.
On the contrary, in a context in which a national government prints certificates of public debt and delivers them to the central bank in exchange for the banknotes that the latter prints, the underlying asset of the banknotes is constituted by the government’s promise to pay the debt represented by the certificates of the public debt that it itself issued.
This is what is called banking seigniorage and its product is “fiat currency”, as we said, a currency backed by nothing.[7]
In conclusion, depending on the monetary policy choice made by each government or other authority, the underlying asset of the currency having legal tender status in the State can be constituted:
- by the material with which the coin is made;
- by the wealth produced in the State in the year preceding the creation of the currency;
- by the national government’s promise to pay the debt that it itself issued to obtain in exchange for the new currency.
From this brief examination it emerges that the legal tender status of a currency has a strong point and a critical profile.
A currency with legal tender has by law the power to extinguish a pecuniary obligation, but it may have a very weak underlying asset in the event that the national government – or other authority – has chosen a monetary policy identified with the name of banking seigniorage.
Given the economic, social and geo-political value that any legal tender currency possesses, it is essential that the proposal for a Regulation state which is the effective underlying asset for the euro.
When I talk about an effective underlying asset, I am referring to:
(1) one or more safe haven assets, such as gold for example,
(2) the wealth produced by the nation that issues the legal tender currency in the year preceding the creation of the currency,
(3) a combination of both of these elements.
Consequently, article 4 paragraph 1 of the proposal for a Regulation must be changed as follows (changes are in bold):
“Each euro banknote and each euro coin must have an effective underlying asset constituted by one or more safe haven assets, the wealth produced by the European Union member State that issues or for which is issued each euro in the year preceding the issue, a combination of both of these elements. The European Central Bank issues administrative acts implementing the previous sentence, addressed to all Member States, so that each Member State can choose one or more of the three options contained in the previous sentence. No euro is legal tender without full compliance with the first two sentences of this paragraph. The legal tender status of euro banknotes and coins shall entail their mandatory acceptance, at full face value, with the power to discharge from a payment obligation.”
3 –The proposal for a Regulation must establish the effectiveness of underlying asset of digital euro
Article 15 paragraph 1 of the proposal for a Regulation states that “Euro banknotes and coins and the digital euro shall be convertible into each other at par.”.
History already includes cases of illegal issuance of currency following double minting.[8]
To avoid a repetition of the resulting political-judicial scandals and the use of taxpayers’ money to cover losses, it is essential that the proposal for a Regulation states that digital euro is subject to the same norms about the effectiveness of underlying asset of euro coins and banknotes.
Consequently, article 15 paragraph 1 of the proposal for a Regulation must be changed as follows (changes are in bold):
“Digital euro is subject to the same norms about the effectiveness of underlying asset of euro coins and banknotes contained in article 4 paragraph 1. Without prejudice to compliance with what is established in the previous sentence, euro banknotes and coins and the digital euro shall be convertible into each other at par.”.
I thank you for your time and attention.
FOOTNOTES
[1] Brussels, 28.6.2023
COM(2023) 364 final
2023/0208 (COD)
Proposal for a
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on the legal tender of euro banknotes and coins
{SEC(2023) 257 final} – {SWD(2023) 233 final} – {SWD(2023) 234 final}
Here you are the pdf file with the proposal for a Regulation 090166e5fdd77dcd
[2] I quote from: Proposal for a Regulation on the legal tender of euro banknotes and coins, Explanatory memorandum, 1. Context of the proposal, Reasons for and objectives of the proposal, page 2, paragraph 3.
[3] Legal tender status in European Union law and in Italian national law
A) European Union law
European Union law gives legal tender status to the euro since 1998.
The legal tender status of the euro is established by article 11 of the Regulation (EC) no. 974/98 of the Council of May 3rd, 1998, relating to the introduction of the euro, published in the Official Journal of the European Communities L 139/1 of May 11th, 1998.
Here under I quote are some articles of Regulation (EC) no. 974/98 of the Council of May 3rd, 1998 relating to the introduction of the euro and its legal tender status (underlined is mine):
- article 2 “As from 1 January 1999 the currency of the participating Member States shall be the euro. The currency unit shall be one euro. One euro shall be divided into one hundred cent.”;
- article 3 “The euro shall be substituted for the currency of each participating Member State at the conversion rate.”;
- article 4 “The euro shall be the unit of account of the European Central Bank (ECB) and of the central banks of the participating Member States.”;
- article 9 “Banknotes and coins denominated in a national currency unit shall retain their status as legal tender within their territorial limits as of the day before the entry into force of this Regulation.” (article 5 “Articles 6, 7, 8 and 9 shall apply during the transitional period.”);
- article 10 “As from 1 January 2002, the ECB and the central banks of the participating Member States shall put into circulation banknotes denominated in euro. Without prejudice to Article 15, these banknotes denominated in euro shall be the only banknotes which have the status of legal tender in all these Member States.”;
- article 11 “As from 1 January 2002, the participating Member States shall issue coins denominated in euro or in cent and complying with the denominations and technical specifications which the Council may lay down in accordance with the second sentence of Article 105a(2) of the Treaty. Without prejudice to Article 15, these coins shall be the only coins which have the status of legal tender in all these Member States. Except for the issuing authority and for those persons specifically designated by the national legislation of the issuing Member State, no party shall be obliged to accept more than 50 coins in any single payment.”;
- article 15, paragraph 1 “Banknotes and coins denominated in a national currency unit as referred to in Article 6(1) shall remain legal tender within their territorial limits until six months after the end of the transitional period at the latest; this period may be shortened by national law.” (article 13 “Articles 14, 15 and 16 shall apply as from the end of the transitional period.”);
- article 17 “This Regulation shall enter into force on 1 January 1999.”.
Regulation (EC) no. 974/98 can be consulted at the internet address:
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1510680266423&uri=CELEX:31998R0974
B) Italian national law
The definition of legal tender status of a currency is contained in articles 1277 and 1278 of the Italian civil code issued in 1942 and still in force.
I invite everyone who wishes to write, in the comments, the norms that define the legal tender of a currency within the national law of every other member States of the European Union.
Here under I quote the articles now mentioned of the Italian civil code in their original text in Italian.
The text in English is at the bottom.
The translation in English and the underlined are mine.
“Articolo 1277 Debito di somma di denaro.
I debiti pecuniari si estinguono con moneta avente corso legale nello Stato al tempo del pagamento e per il suo valore nominale. Se la somma dovuta era determinata in una moneta che non ha più corso legale al tempo del pagamento, questo deve farsi in moneta legale ragguagliata per valore alla prima.”
“Articolo 1278 Debito di somma di monete non avente corso legale.
Se la somma dovuta è determinata in una moneta non avente corso legale nello Stato, il debitore ha facoltà di pagare in moneta legale, al corso del cambio nel giorno della scadenza e nel luogo stabilito per il pagamento.”
“Article 1277 Debt of a sum of money.
Pecuniary debts are extinguished with money that has legal tender in the State at the time of payment and for its nominal value. If the sum due was determined in a currency which has no longer legal tender at the time of payment, this must be done in legal tender currency equal in value to the former.”
“Article 1278 Debt of sum of coins not having legal tender status.
If the sum due is determined in a currency that has not legal tender in the State, the debtor has the right to pay in legal tender currency, at the exchange rate on the due date and in the place established for payment.”
[4] See footnote 2.
[5] The content of this paragraph about underlying asset of a curency is taken from the article
Giorgio Cannella, Il Bitcoin e la moneta avente corso legale (Bitcoin and legal tender currency)
published in Italian on November 15th, 2017, at the internet address:
https://giorgiocannella.com/index.php/2017/11/15/il-bitcoin-e-la-moneta-avente-corso-legale/#_ftn2
[6] The gross domestic product of that nation.
[7] Banking seigniorage and its product “fiat currency” are described by many disquieting videos some of which you can view at the following internet addresses:
(video in Italian)
Prof. Auriti – Signoraggio Bancario: La più Grande Truffa della Storia
https://www.youtube.com/watch?v=otwSQyaPy-Y
(video in English)
Who Controls All of Our Money?
https://www.youtube.com/watch?v=mQUhJTxK5mA
(video in English)
Bank Crisis & Inflation: The Biggest Scam In The History Of Mankind – Hidden Secrets of Money Ep 4
https://www.youtube.com/watch?v=iFDe5kUUyT0
[8] In Italy, the mind goes to the Banca Romana scandal from 1892 to 1894.
(text in Italian)
Scandalo della Banca Romana
https://it.wikipedia.org/wiki/Scandalo_della_Banca_Romana
(text in English)
Banca Romana scandal
https://en.wikipedia.org/wiki/Banca_Romana_scandal
Quotations and footnotes were verified on the date of publication of this article on the site www.giorgiocannella.com