Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund

Annex I: Draft Central Bank Law Provisions Related to CBDC

Central Bank Functions

Art. Xx. Functions

With a view to achieving its objectives, the Central Bank has the following functions:

  • i. to define and implement monetary policy;

  • ii. …

  • iii. to issue currency;

  • iv. to promote a sound and efficient payment system;

  • v. ….

Central Bank Powers

Art. Xx. Currency

The Central Bank is authorized to issue banknotes, coins and currency in digital form.

[Art. Xx. Powers Ancillary to the Issuance of Currency

The Central Bank is authorized to produce, acquire, distribute, withdraw and destroy banknotes, coins and currency in digital form and to adopt measures to ensure the storage of value and transaction processing of currency in digital form.]

Art. Xx. Current Accounts

The Central Bank is authorized to open current and other accounts in its books for the State, public bodies, banks, and other categories of accountholders established by the [Executive Board/Board of Directors].

The credit balances on those accounts may be remunerated.

Annex II: Draft Monetary Law Provisions Related to CBDC

Art. Xx. Legal Tender of Currency

The banknotes and coins issued by the Central Bank are legal tender in [name country].

The currency issued by the Central Bank in digital form is legal tender for payment of monetary obligations to the State, municipalities, banks and [to be determined]. The Government is authorized to expand these entities by Decree.

Art. Xx. Monopoly of Issuance of Currency

The Central Bank has the sole right of issuing metallic coins and bearer on demand notes, in paper and any other material or immaterial (including digital) form.

Any person or entity who issues coins, bearer on demand notes, in paper and any other material or immaterial (including digital) form, or any other document or token which is likely to pass as currency or means of payment will be punishable by [TBC].

[This provision applies without prejudice to the issuance of electronic money pursuant to {legislation}.]

Annex III. Criminal Law and CBDC

So far national laws only focus on the suppression of counterfeit banknotes and coins; i.e. not explicitly on the counterfeiting of CBDC.

National Law on Counterfeiting and Mutilating Legal Tender

Whereas the definition of counterfeiting and the appropriate sanctions are commonly set out in criminal codes, various central bank laws do contain relevant provisions, as the following example of Article 64 of the Organic Constitutional Law of the Central Bank of Chile (as amended) demonstrates: “Whoever manufactures or sets in circulation objects whose shape resembles banknotes of legal tender in a manner that such forged banknotes are easily accepted in place of the real ones, shall be penalized with 541 days to 5 years of imprisonment.”

Various countries also have criminal law provisions prohibiting the mutilation of banknotes and coins. This is to protect issued legal currency. For example, in the USA 18 USC 333 prescribes criminal penalties against anyone who “mutilates, cuts, defaces, disfigures or perforates, or unites or cements together, or does any other thing to any bank bill, draft, note…”. Similarly, Section 28(1) of the Reserve Bank of New Zealand Act provides that “no person shall, without the prior consent of the Bank, willfully deface, disfigure or mutilate any banknote”. A contravention of this probation qualifies as an offence and makes the perpetrator liable on conviction to a fine not exceeding $ 1000.

The same focus on the suppression of counterfeit banknotes and coins is found in public international law.

Geneva Convention for the Suppression of Counterfeiting

The Geneva Convention for the Suppression of Counterfeiting of April 20, 1929 aims to harmonize the national criminal substantive law elements of offences in counterfeiting. This Convention is still in force.

Article 2 of the Convention defines currency to mean “paper money (including banknotes) and metallic money, the circulation of which is legally authorized”.

Article 3 provides that member countries should ensure that the following acts are punishable as ordinary crimes:

(i) the fraudulent making or altering of currency, whatever means are employed, (ii) the fraudulent uttering of counterfeit currency,

(iii) introducing, receiving, or obtaining currency with a view to uttering the same and with knowledge that it is counterfeit,

(iv) attempts to commit, and intentional participation in the foregoing and

(v) the fraudulent making, receiving or obtaining of instruments or other article peculiarly adapted for counterfeiting or altering currency.

Each of the aforementioned acts should be considered as a distinct offence if they are committed in different countries.

The Convention also establishes a mechanism for international cooperation against counterfeiting. Article 12 requires the member countries to centralize, within the framework of their domestic laws, investigations about counterfeiting in a Central Office. Such central office must be in close contact with the central bank issuing currency, the national police and the Central Offices in other countries. ICPO-Interpol acts as the International Central Office for the Suppression of Currency Counterfeiting (Article 15).

An important point is that the counterfeiting provisions in central bank laws (or criminal laws) do not explicitly address cybercrimes affecting digital currencies. Nevertheless, cyber security law is an existing body of law which could—with due observance of the principle of nullum crimen sine lege, nulla poena sine lege—be used to regulate digital counterfeiting of CBDC. Indeed, on November 23, 2001 the Council of Europe adopted the first international treaty on cybercrime: the Budapest Convention on Cybercrime.92

Budapest Convention on Cybercrime

Like the Geneva Convention, the Budapest Convention aims to harmonize the national criminal substantive law elements of offences in cybercrime and it also establishes a mechanism for international cooperation against cybercrime.93The Budapest Convention does not explicitly mention offences against central bank digital currencies.

However, it lists several offences which consist in interfering with, the misuse of, forgery, or fraud related to computer data. Article 1 of the Budapest Convention defines computer data to mean “any representation of facts, information or concepts in a form suitable for processing in a computer system, including a program suitable to cause a computer system to perform a function”. This definition could reasonably be taken to include data incorporated in a central bank digital currency. Therefore, the following substantive criminal law offences, which are harmonized by the Budapest Convention, are drafted in a broad manner and are therefore particularly relevant to the forgery, fraud and interference with central bank digital currencies:

(i) intentionally damaging, deleting, deteriorating, altering or suppressing computer data without right (Article 4),

(ii) Intentionally (seriously) hindering without right the functioning of a computer system by inputting, transmitting, damaging, deleting, deteriorating, altering or suppressing computer data (Article 5),

(iii) intentionally producing, selling, procuring for use, import, distribution or otherwise making available devices, including computer programs, designed or primarily adapted for the purpose of cybercrime (Article 6),

(iv) committing intentionally and without right, the input, altering, deletion, or suppression of computer data, resulting in inauthentic data with the intent that it be considered or acted upon for legal purposes as if it were authentic, regardless whether or not the data is directly readable and intelligible (computer-related forgery) (Article 7),

(v) causing the loss of property to another person by any input, alteration, deletion or suppression of computer data (computer-related fraud) (Article 8), and

(vi) the infringement of copyright and related IP rights (Article 10).

Note that the wording of the cybercrime offences is broad enough so that it does not seem necessary to define mutilation as a criminal offence (as is the case for legal tender banknotes and coins). Indeed, the wording of “intentionally damaging, deleting, deteriorating, altering or suppressing computer data without right” in Article 4 would cover intentional mutilation of central bank digital currency.

While the wording of the Budapest Convention’s cybercrimes is in principle broad enough to cover offences to CBDC, the principle of nullum crimen sine lege, nulla poena sine lege would require the authorities to precisely define the cybercrime offences against CBDC. Therefore, most jurisdictions will not be able to apply their counterfeiting rules to token-based CBDC. Also, as already noted, the criminal law rules on counterfeiting will not apply to account-based CBDC as book money cannot be counterfeited. Of course, cyber security law could provide special protection to the integrity of the central banks’ IT systems that are used to issue this type of CBDC.

References

  • ADB Institute, 2019, Central Bank Digital Currency and Fintech in Asia.

  • Allen, J., 2019, Property in Digital Coins, 8(1) European Property Law Journal, 64.

  • Allen, J., and Lastra, R., 2019, Virtual Currencies in the Eurosystem: Challenges Ahead, The International Lawyer, Vol. 53, No. 2.

  • Allen, J., and Lastra, R., 2020, Border Problems: Mapping the Third Border, Modern Law Review, 83(3).

  • Auer, R., and Bohme, R., 2020, The Technology of retail central bank digital currency, BIS.

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  • Bank of Canada, ECB, Bank of Japan, Sverigse Riksbank, Swiss national bank, Bank of England, Board of Governors of the Federal Reserve System and BIS, 2020, Central Bank Digital Currencies: Foundational Principles and Core Features: Report No. 1 in a series of collaborations from a group of central banks.

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  • Riksbank, 2019, The state’s role on the payment market.

  • Rogoff, K., 2016, The Curse of Cash.

  • Shirai, S., 2019, Central Bank Digital Currency: Concepts and Trends, VOX CEPR Policy Portal, 6 March 2019.

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  • Zilioli, C., 2020, Crypto-assets: Legal Characterization and Challenges under Private Law, 46 EL Review.

1

This paper was written while Masaru Itatani was on secondment with the IMF. While the views expressed in this paper are to some extent based upon the authors’ experience as Fund counsels, the views expressed herein are their own and should not necessarily be attributed to the Fund or the institution an author belongs to. The authors are grateful to Jason Allen, Niels Andersen, Phoebus Athanassiou, Susanne Bohman, Ludovico Cardone, Cristiano Crozer, Jose Garrido, Lorenzo Gatti, Christopher Hunt, Barend Jansen, Monika Johansson, Naoto Katagiri, Christoph Keller, Benedicte Nolens, Rosa Lastra, Yan Liu, Manuel Monteagudo, Panagiotis Papapaschalis, Charles Proctor, Mario Tamez, Kristof Van Nuffel, and staff from the Peoples Bank of China, Central Bank of Ghana, Bank of Israel, Banco de Mexico, Central Bank of the Philippines, the Monetary Authority of Singapore and the Bank of Thailand, for their review and comments. This paper also benefitted greatly from comments of other IMF departments. Obviously, all errors and omissions are the authors’ alone.

2

See Central Bank Digital Currencies: Foundational Principles and Core Features: Report No. 1 in a series of collaborations from a group of central banks, BIS, 2020.

3

Barontini, C., and Holden, H., Proceeding with Caution-a Survey on Central Bank Digital Currency, BIS Papers No. 101, January 2019, p. 12.

4

Think tanks are also formulating views: see Gnan, E., and Masciandaro, D., Do We Need Central Bank Digital Currency? Economics, Technology and Institutions, SUERF, 2018/2; Shirai, S., Central Bank Digital Currency: Concepts and Trends, VOX CEPR Policy Portal, 6 March 2019.

5

IMF Staff, Digital Money Across Borders: Macro-Financial Implications, IMF, 2020; IMF Staff, Casting Light on Central Bank Digital Currency, IMF, SDN/18/08; IMF Staff, A Survey of Research on Retail Central Bank Digital Currency, WP/20/104.

6

Carstens, A., The Future of Money and Payments, Central Bank of Ireland 2019 Whitaker Lecture, 2019; Barontini, C., and Holden, H., o.c.; Auer, R., Cornelli, G, and Frost, J., Rise of the Central Bank Digital Currencies: Drivers, Approaches and Technologies, BIS, WP No. 880, August 2020; and Bech, M., and Garratt, R, Central Bank Cryptocurrencies, in BIS, Quarterly Review, 2017, p. 55–70.

7

CPMI, Central Bank Digital Currencies, BIS, March 2018, p. 1.

8

See ADB Institute, Central Bank Digital Currency and Fintech in Asia, 2019, and Section 3.3.1. on “legal certainty” in particular.

9

For a public law perspective on the relations between money, central banks, the State and the law: see Lastra, R., Legal Foundations of International Monetary Stability, Oxford University Press, 2006, chs. 1 and 2 and Lastra, R., International Financial and Monetary Law, Oxford University Press, 2015, chs. 1 and 2.

10

While monetary and central bank law are reasonably harmonized among jurisdictions, legal frameworks and traditions vary considerably in their likely treatment of CBDC under private law and tax law. The complexities raised by the various private and tax law issues deserve a separate space and attention. See Perkins, J., and Enwezor, J., The legal aspect of virtual currencies, Butterworths Journal of International Banking and Financial Law, November 2016, p. 569; Zilioli, C., Crypto-assets: Legal Characterization and Challenges under Private Law, EL Review, April 2020; Allen, J.G., Property in Digital Coins, (2019) 8(1) European Property Law Journal 64; Fox, D., and Green, S., (eds.), Cryptocurrencies in Public and Private Law, Oxford University Press, 2019; and Waerzeggers, C., and Aw, I., Difficulties in Achieving Neutrality and other Challenges in Taxing Crypto Assets, in Chris Brummer, ed, Cryptoassets: Legal, Regulatory and Monetary Perspectives (New York: Oxford University Press, 2019) 219.

11

On definitional issues, see Allen, J., and Lastra, R., “Virtual Currencies in the Eurosystem: Challenges Ahead”, The International Lawyer, Vol. 53, No. 2, 2019, pp. 177–232. They further consider these as well as border issues in “Border Problems: Mapping the Third Border”, Modern Law Review, 2020, DOI:10.1111/1468–2230.12506, https://onlinelibrary.wiley.com/doi/abs/10.1111/1468–2230.12506?af=R

12

CPMI, o.c., p. 3.

13

IMF Staff (2018), o.c., p. 7.

14

Examples of such regulations are the Central Bank of Kenya’s 2013 E-money Regulation, the EU’s Directive on electronic money institutions (2009/110/EC), and the State Bank of Pakistan’s 2019 Regulations for electronic money institutions.

15

To date, the Central Bank of The Bahamas has issued a digital “Sand Dollar” and the Central Bank of Lithuania launched a commemorative digital currency (LBCOIN). Pilot projects cannot be considered as official launches, including because often there is no sufficient legal basis for the issuance. However, some countries, such as China, have been developing the legal basis in preparation for issuing CBDC.

16

In the case of a retail CBDC directly operated by the central bank, the central bank itself may need to implement AML/CFT measures, including those on customer due diligence. This may require additional resources and expertise for the central bank.

17

See Central Bank Digital Currencies: Foundational Principles and Core Features: Report No. 1 in a series of collaborations from a group of central banks, Box 1 (“Synthetic CBDC is not a CBDC”).

18

In case of insolvency of the issuing commercial bank, holders will only have a claim on the latter, and not the central bank. This is so even if the credit balance in the books of the central bank is reserved for the holders. In case the 100% reserve requirement was not met, this could lead to losses. This is not the case of real CBDC.

19

AML/CFT and privacy/anonomity concerns will also be relevant in this regard.

20

The identification criteria to distinguish between account and token-based CBDC was articulated in a number of publications, including: Auer, R., and Bohme, R., The Technology of retail central bank digital currency, BIS, 2020; and Kahn C, How are payments accounts special?, Federal Reserve Bank of Chicago, 2016.

21

On the legal concept of “central bank mandate,” see Bossu, W., and Rossi, A., The Role of Board Oversight in Central bank Governance: Key Legal Design Issues, WP/19/293, p. 10–11. It is noted that not all central bank laws make a sufficiently clear distinction between objectives, functions and powers. On the evolution of the functions and objectives of central banks as well as on the need for central bank accountability, see Lastra, R., International Financial and Monetary Law (Oxford University Press, 2015), chapter 2 and Goodhart, C., The Evolution of Central Banks, MIT Press, 1985.

22

Consideration should also be given to the third legal component of the central bank mandate: the objectives. Today, this aspect may appear less relevant, as the issuance of currency constitutes only a minor element of pursuing price stability. Going forward, central banks contemplating the issuance of CBDC will need to justify how such issuance contributes to the pursuit of their objectives, which may in some jurisdictions require compliance with a “proportionality test.” In that regard, the impact of the issuance of CBDC on the stability of the banking sector and the possibility to charge (including negative) interest on CBDC may influence this assessment. For instance, the latter may establish a very direct link between the central bank’s objectives and the functions of the issuance of currency and the formulation and implementation of monetary policy.

23

Article 4 (B). 7 of the Central Bank of Jordan Law provides the central bank with the function “to issue banknotes and coins in the Kingdom.” Article 3 of the Dutch Central Bank Law mentions that DNB’s functions include “to provide for the circulation of money as far as it consists of banknotes.”

24

Such a definition could also be included in a “monetary” or “currency act.”

25

In some countries, the argument is actually more straightforward: banknotes are legally equated with promissory notes and these notes must always be “in writing” (see, e.g., Section 83(1) of the UK’s Bills of Exchange Act 1882).

26

Article 7 of the National Bank of Ukraine Law provides the central bank with the function of “solely issuing the domestic currency of Ukraine and to organize its circulation.” Section 2(b) of the Central Bank of Nigeria Act 2007 prescribes a “principal object” of the central bank to “issue legal tender currency in Nigeria.”

27

In line with the principle of implied powers (see Box 3), the function of issuance of currency may be taken to include all the powers – such as the printing and minting of banknotes and coins, bringing them into circulation, or withdrawing them from circulation, and defining rules on their reproduction—that are necessary to enable the issuance of banknotes and coins. To hold otherwise would undermine the function of issuing banknotes and coins. See Smits, R., The European Central Bank Institutional Aspects, 1995, p. 206.

28

As an example of a general power, Article 37 of the National Bank of Rwanda Act states that “Banknotes and coins issued by NBR are sole legal tender on the territory of the Republic of Rwanda. However, NBR may issue other forms of currency being legal tender.”

29

Article 17 of the Organic Law of the Central Bank of Argentina states that “The Bank shall be empowered to conduct the following operations – a) Issue bills and coins pursuant to the powers delegated by the National Congress.” In Brazil, Article 10 of Law 4595/1964 states that the Central Bank of Brazil has the exclusive power to “I – issue paper money (moeda-papel) and metal money (moeda metálica)”. Similarly, Article 28 of the Organic Constitutional Law of the Central Bank of Chile establishes that “the Bank has the exclusive power to issue banknotes and to mint coins in accordance with the provisions of this section.”

30

Section 19 (1) of the Bermuda Monetary Authority Act illustrates this point: “The Authority shall at all times maintain a reserve of external assets which—shall be in value not less than an amount equivalent to 50% of the total liabilities of the Authority in relation to the face value of currency notes in circulation; and shall consist of all or any of the following—”

31

On the matter of currency boards, see of Lastra, R., International Financial and Monetary Law, Chapter 2.

32

This is illustrated by Article 31 of the Law of the Central Bank of Bosnia Herzegovina, which states that “For the purposes of this Law: a. The aggregate amount of the monetary liabilities of the Central Bank shall be at any time the sum of: (A) all outstanding banknotes, coins put in circulation by the head office, main units, and other branches of the Central Bank.”

33

See Section 17 of the Central Bank of Nigeria Act: “The Bank shall have the sole right of issuing currency notes and coins throughout Nigeria and neither the Federal Government nor any State Government, Local Government, other person or authority shall issue currency notes, bank notes or coins or any documents or tokens payable to bearer on demand being document or token which are likely to pass as legal tender.”

34

See Art. 4.3 of the Law concerning Currency, the Central Bank of Kuwait and the Organization of Banking Business.

35

Article 4(B)15 of the Central Bank of Jordan Law enables the central bank to “carry out any other functions and transactions normally performed by central banks as well as any duties entrusted to it under this law”. Section 26 of the Reserve Bank of Australia Act states that “The Reserve Bank: (a) is the central bank of Australia; (b) shall carry on business as a central bank; and (c) subject to this Act and to the Banking Act 1959 shall not carry on business otherwise than as a central bank.”

36

Article 8 (1.11) on the Law on the Central Bank of the Republic of Kosovo clarifies that the central bank may “carry out any ancillary activities incidental to the exercise of its tasks under this Law or under any other Law.”

37

A possible counter argument could be that token-based CBDC may have different design features from the traditional characteristics of paper money (e.g., as regards interest accrual, the degree of availability to users, or limits to anonymity). The consequence would be that, however broad the language used by the law, it would not necessarily warrant that all conceivable designs of CBDC would be encompassed by the broad legal authorization to issue currency.

38

The role of specific ancillary powers deserves consideration. The legal question is whether the drafting of these specific powers could be extended to token-based CBDC? Of course, similar to banknotes and coins, token-based CBDC is also produced, put into circulation and can be withdrawn; after all the central bank will determine the total amount of pre-paid values to be transferred, and stored on a device, card, or an app. Therefore, these specific ancillary powers can also be relevant for token-based CBDC. The only difference would be the specific powers for printing and dealing with counterfeit banknotes and coins, which are not needed as token-based CBDC cannot be printed or counterfeited (at least not in the traditional sense of the word). Nevertheless, a central bank would have to determine how it would legally deal with faulty devices, cards and apps and falsified token-based CBDC.

39

The Central Bank of Uruguay is justifying the issuance of token-based CBDC on the basis of this argument.

41

Section 28 (c) of the Reserve Bank of Malawi Act lists the powers of the RBM, which include to “open accounts for, and accept deposits from the Government, funds, corporations and institutions controlled by the Government, banks and other financial institutions in Malawi.” Article 55 of the Organic Constitutional Law of the Central Bank of Chile allows the Bank to “open current accounts for banking and financial entities, the General Treasury of the Republic, and to other public institutions, organisms or State companies when necessary to conduct operations with the Bank, according to the qualification of the majority of the Board.”

42

Article 60 of the Law of the Central Bank of Costa Rica states that “the Central Bank is authorized to receive deposits in current account or at term, in national or foreign currency.” Article 10 of the Law of the Central Bank of Curacao and Sint Maarten states that “the Bank is also authorized to perform the following activities: 2. to receive funds in trust, on deposit or in a current account;”

43

Article 55 (4) in the Statute of the Bank of Greece gives the BoG the power to “keep an account for the State, as well as for public entities, credit institutions, legal entities, natural persons, and other market participants”.

44

Article 48, 2nd para, of the Central Bank of the Russian Federation Act stipulates that “the Bank of Russia shall be entitled to provide services to clients other than credit institutions in regions where there are no credit institutions.”

45

Section 75 of the Central Bank of Malaysia Act lists Bank Negara Malaysia’s general powers which include the power to “open accounts for (…) (i) the Government, any State Government, public authority or financial institution; or (ii) any other person in Malaysia with the prior approval of the Minister”.

46

In some central bank laws (e.g., Mexico), this is actually an objective of the central bank.

47

National payment system acts can also be relevant in this regard.

48

Article 5 of the Federal Act on the Swiss National Bank mentions the SNB’s function of “facilitating the operation of cashless payments systems.” Section 4A (1) of the Central Bank of Kenya Act states that “the Bank shall: (d) formulate and implement such policies as best promote the establishment, regulation and supervision of efficient and effective payment, clearing and settlement systems.”

49

An example can be found in Article 7 of the Law on the National Bank of Cambodia, which counts among the functions of the central bank: “to oversee payment systems in the Kingdom and to enhance interbank payments.” Article 18 of the Bank Indonesia Law states that “Bank Indonesia shall arrange the final settlement of interbank payment transaction both in rupiah and or foreign currencies.”

50

Chapter 1, Section 2 of the Swedish Riksbank Act states that “The Riksbank shall also promote a safe and efficient payments system.” Article 3.3 of the Law on the National Bank of Georgia similarly declares that: “The functions of the National Bank shall be to: f) facilitate secure, sustainable and effective functioning of the payment system.”

51

The participation of FMIs is the exception that confirms the rule, as FMIs do not make payments on their own behalf but on behalf of their clients, which are also mostly banks.

52

A similar conclusion can be reached for the oversight powers of central banks, which can also entail the establishment of a legal infrastructure for payment transfers via such “interbank” payment systems.

53

In Mexico, this requirement is actually enshrined in the “fintech law.”

54

Article 7(7) of the Law on the National Bank of Ukraine provides a function to: “shap(e) the development of modern electronic banking technologies, establishing payment and accounting systems, promoting their smooth and efficient operation, and ensuring development of payment and record-keeping systems created by the NBU; controlling the creation of payment instruments, banking automation systems and banking data protection systems”.

55

For instance, there is no need to extend the provisions on the printing of banknotes to token-based CBDC.

56

Hahn, H., Häde, U., Währungsrecht, 2010, §2. The concept of another country’s “monetary law” is often referred to by legislation. For example, 31 USC § 5151 provides rules on “conversion of currency of foreign countries”. Also, private international law rules usually refer to the country of issuance as locus of monetary law issues: see e.g. Swiss Federal Code on Private International Law, Section 147(3).

57

The Permanent Court of International Justice recognized that the lex monetae determines the value of the currency, albeit that it is for the lex contractus to determine the effect of a devaluation on contractual obligations; Judgments in the Serbian and Brazilian Loan Cases, July 12, 1929, Series A No. 20 and 21.

58

We cite the French terms here because the English language is particularly confusing in the loose use of the term “currency,” which in common language is often used to denote both aspects, although strictly speaking the synonym for the official monetary unit should be “currency unit.”

59

Mann, F., The Legal Aspect of Money, 4th Ed., p. 80.

60

Mann, F., o.c., p. 84.

61

Monetary law will also define the subdivision of the official monetary unit, for instance that 100 cents equal a Dollar or a Euro.

62

Kenyan law provides a good example of how those two principles of monetary law are actually enshrined in legislation. Section 19 of the Central Bank of Kenya Act provides that “the unit of currency of Kenya shall be the Kenya shilling, which shall be divided into one hundred cents.” In turn, Section 20 of the same Act states that: “The external value of the Kenya shilling shall be determined by the market.”

63

This does not preclude the existence and use of non-official means of payment. Specifically, the use of commercial bank book money as a means of payment is in many countries more widespread than that of the official means of payment. But ultimately commercial bank book money is (unless contractually otherwise stipulated or limited) a claim to receive officially issued banknotes and coins.

64

This point is nicely illustrated by Article 42 of the Law of the Central Bank of Peru: “the issuance of banknotes and coins is the exclusive capacity of the State, which exercises it through the central bank.” In most cases, these means of payment are issued by a country’s central bank, and coins in some countries by the Treasury. An important quid pro quo for this official sanction is that the issuer pays (part of) the income generated by the issuance of the monetary instruments to the State: this is the so-called seignorage.

65

This is the case of banknotes issued by private banks in Scotland and Northern Ireland.

66

This term referred originally to the suspension and eventually the abolition of the convertibility in specie of banknotes issued by the central bank—the concept is not relevant for coins. Banknotes used to incorporate a claim for restitution of an amount of deposited gold (or silver) coin (or bullion). In the first half of the 20th century (often in response to the first World War), most countries suspended the convertibility of their banknotes, to avoid a panic run on the gold reserves and thus the bankruptcy of the central bank. This is a benefit of which ordinary claims on deposited gold (e.g. with goldsmiths) did not enjoy. This suspension was eventually made permanent and today all countries have no longer convertibility of banknotes in gold. As discussed above, there are still some central bank laws that require the central bank to back issued banknotes with foreign currencies, gold, government securities: see e.g. Art 109 Central Bank of Egypt Law. While this is a legacy from the convertibility under the gold standard, such provisions are no longer necessary (absent a currency board) nor good practice.

67

Under negative interest rates, some central banks try to limit this convertibility, but this is done more through the cost structure of conversion than by restricting the principle itself.

68

This type of dispute has been observed in many countries when the creditor faced significant depreciation of local currency after the contract was entered into.

69

Section 19 (5) of the Central Bank of Nigeria Act punishes criminally a “person who refuses to accept the Naira as a means of payment.” In the past, Article 8, Paragraph 6 of the Japan’s National Bank Ordnance (1872) stipulated also a criminal violation. Very recently, China’s central bank issued a circular stating that cash payments must not be refused in regular transactions (Circular 10, 2018).

70

Most jurisdictions allow up to a degree to choose the monetary unit of the contractual monetary obligation and the corresponding means of payment. There are, however, jurisdictions with more restrictive rules that authorize exclusively the use of the national monetary unit and means of payment.

71

A State can also restrict the scope of legal tender status. For example, several laws limit the amount of banknotes and coins to be used in one transaction for the convenience of recipient parties or for AML purposes.

72

For example, Section 19 of the Central Bank of Liberia Act provides that: (1) “The Liberian Dollar shall be the currency of Liberia and legal tender” (2nd sentence); and (2) “Currency of the United States of America shall be legal tender in Liberia” (1st sentence).

73

Over time, other legal rules have been added to legal tender rules, which make the legal status of legal tender status quite complex. For instance, many countries actually forbid cash payments over a certain amount (for tax and AML concerns). In some cases, payment of a large sum by coins is also forbidden.

74

This is, for instance, the case of the Belgian Royal Decree Nr. 56 of 10 November 1967 “to promote the use of book money.” Between merchants, payments in book money or cheque cannot be refused for amounts above 250 EUR (Art. 3).

75

This is the case today of Scottish and Northern Irish banknotes issued by private banks.

76

The Riksbank recently raised this issue clearly in the context of a discussion on declining usage of cash within the country. The Riksbank considers that there may be a need to make legal tender status technology-neutral, so that electronic means of payment issued by itself could also become legal tender. However, it also stressed the need to assess possible consequences of such legislation for the general public, including older people, disabled people and people who are financially or digitally excluded. See Riksbank, “The state’s role on the payment market” 2019) https://www.riksbank.se/en-gb/press-and-published/notices-and-press-releases/press-releases/2019/the-riksbank-proposes-a-review-of-the-concept-of-legal-tender/

77

Art. 1 of the Belgian Royal Decree mentioned in footnote 60 requires all merchants to open a current account in the books of a bank and the account number must be mentioned on all invoices.

78

Recently in the US, some municipalities (New Jersey, Philadelphia, New York City, and San Francisco) have introduced ordnances which prohibit certain retail businesses from declining acceptance of cash tendered by consumers.

79

As one example, Art. 2279, second para., of the Belgian civil code extends the good faith protection to the acquirer of banknotes issued by the central bank: the rule that allows a victim of loss or theft of a movable to revendicate during a 3 years period does not apply. As another example, Art. 14 of the Law on the Statute of the National Bank of Romania provides that “legal provisions regarding lost or stolen bearer certificates do not apply to banknotes and coins issued by the National Bank of Romania.” Art. 64 of the Law on the Central Bank of Mauritania has a similar provision.

80

The Doctrine of Negotiable Instruments or similar doctrines (valeurs mobilières, Wertpapiere) basically enshrine the once revolutionary idea that contractual claims can be incorporated in a piece of paper and be transferred by, i.a., the mere physical transfer of that piece of paper—and thus depart from the fundamental rules and procedural requirements of the Roman law cessio (assignment).

81

This was the experience of Belgium, where from 1926 to 1946 the traditional franc and the newly introduced belga coexisted legally at a rate of 5 francs for 1 belga. In fact, the belga was never widely accepted, not even on the exchange markets. By habit and for convenience’s sake the Belgians continued to calculate in francs and never wanted to use the new name. See: https://www.nbbmuseum.be/en/2007/03/belga.htm Also in Brazil, during four months in 1994, two different monetary units coexisted as a step in the Real stabilization plan. At that time, the central bank published daily the conversion rates of the old monetary unit (Cruzeiro) to the new monetary unit (URV, acronym for “real unit of value” in Portuguese), up to the moment of the Cruzeiro’s extinction.

82

See Central Bank Digital Currencies: Foundational Principles and Core Features, p. 11.

83

See also Banque de France, o.c., p. 32.

84

See Perkins, J., and Enwezor, J., o.c., p. 570, who refer to “virtual choses in possession.”

85

At the same time, it must be acknowledged that even banknotes can, up to a degree, be traced by a serial number, but this does not prevent the legal system from applying absolute protection to the bona fide acquirer.

86

Lending in the Roman law sense of mutuum, not commodatum: the bank can use the currency lent and only needs to restitute a same amount of similar currency.

87

An exception is Article 2 c) of the Swiss Federal Act on Currency and Payment Instruments.

88

In Switzerland, this is solved by limiting the obligation to accept Swiss franc sight deposits at the Swiss National Bank in payment without restriction to “any person holding an account there” (Article 3.3). Moreover, “the National Bank shall specify the conditions under which institutions offering payment transaction services may maintain Swiss franc sight deposits” (Article 10).

89

See for instance Article 9 of the Belgian “Settlement Finality Law” (of 28 April 1999), which prohibits attachment of a “settlement account of a designated (payment or settlement) system.” It is unlikely that current accounts held by the general public for account-based CBDC would qualify as such.

90

If the central bank decides to give access to individuals and firms and attachment and garnishment of accounts in its books is prohibited, there is a real risk that recalcitrant debtors will open these accounts, which would be impossible to seize by creditors.

92

European Treaty series No. 185. The Convention has been signed and ratified primarily by member countries of the Council of Europe, but it is open for accession by non-member countries. As a result, a number of important non-members such as Australia, Canada, Israel, Japan and the USA have also signed and ratified this Convention.

93

ICO-Interpol’s Global Cybercrime Strategy for 2016 to 2020 outlines the organization’s support to member countries to combat cybercrime by coordinating and delivering specialized police capabilities in this regard.

Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations
Author: Wouter Bossu, Mr. Masaru Itatani, Catalina Margulis, Arthur D. P. Rossi, Hans Weenink, and Akihiro Yoshinaga