Payment in €200 and €500 banknotes

Mario Mallia wrote to ask me to state my opinion on a correspondence that he had with the European Central Bank on the use of €200 and €500 banknotes, which are now legal tender in Malta.

Mr Mallia wrote to the ECB complaining that his cash payment of €200 was rejected by the sales person of a particular airline when purchasing an air ticket. He was told by the sales person that it was standard policy for the company not to accept euro notes in denominations higher than €100.

He first wrote to the National Euro Changeover Committee (NECC) in Malta, which stated that this policy is, in fact, not illegal. He was informed that in all eurozone countries some firms choose not to accept denominations of €200 and €500.

Mr Mallia feels that once a denomination is in public circulation and, hence, legal tender, no commercial outlet should refuse it. He feels that cash should never be refused as a form of payment for goods and services as this would undermine public trust in banknotes.

He also asked the ECB to urge the Maltese authorities to issue a legal notice stating that all euro denominations are acceptable for payment transactions made in cash and, therefore, commercial outlets should not be in a position to refuse payments.

In its reply, the ECB said that it had been made aware of certain individual practices by individual businesses as those raised by the reader. It said that all these situations reported to the ECB have so far not appeared to indicate any general tendency that could endanger the integrity of the euro as means of payment.

The ECB went on to state that, currently, EU law does not prohibit individual businesses from this type of practice as long as the arrangements are implemented within the limits allowed by national contract laws (or applicable general principles).

This means that even though euro banknotes and coins are legal tender in eurozone countries and legal tender is, in general, vested with the power of discharging monetary obligation, it is still possible for individual parties to agree on different payment methods.

The ECB concluded that contractual freedom is a principle common to the jurisdictions of all member states that have adopted the euro. Hence, in general it appears possible for an individual business not to accept certain banknote denominations if such a limitation is communicated and/or otherwise performed under the conditions of contract law including the principles of contractual freedom.

As to my view. I have looked into the matter and I have to say that I concur with the views expressed by both the European Central Bank and by NECC that this practice is not, as such, illegal.

Whereas it is obvious that €200 and €500 euro notes are legal tender, it is nevertheless possible for some businesses or even shop outlets to refuse to accept notes in such high denominations, often for security reasons or simply to avoid giving a lot of change.

Of course, when this is done, it is important that clients are adequately informed in advance. If the airline in question does not inform clients of its policy of refusing banknotes in high denominations then it should do so because otherwise clients risk being caught in a difficult situation.

I have also brought this matter to the attention of the European Commission in a parliamentary question requesting its views. In fact, in its response, the Commission too confirmed that this practice is not illegal. The Commission stated that this practice existed from the time the currency entered into circulation. It confirmed that if retailers clearly inform their clients of their policy concerning high denomination banknotes (say, through signs visible in the shops), consumers who buy from such shops are considered as having entered into a contractual relationship with the shopkeeper and tacitly accepted the conditions stated.

Readers who wish to view the full text of the parliamentary question and the Commission's reply may do so from this link: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+WQ+E-2008-3280+0+DOC+XML+V0//EN&language=EN .

Of course, the reader feels rightly puzzled at this practice and it is understandable that he objects to it. On the other hand, it has to be underlined - as the ECB noted - that this does not mean that these two notes are not legal tender or that they are somehow in decline. Nor does it mean that the integrity of the euro as a form of payment is, in any way, endangered.

Readers who would like to ask questions to be answered in this column can send an e-mail, identifying themselves, to contact@simonbusuttil.eu or through www.simonbusuttil.eu.

Dr Busuttil is a Nationalist member of the European Parliament.