EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 5 August 2008  
at the request of Latvijas Banka on a draft regulation on lats banknotes and coins  
(CON/2008/36) 
 
Introduction and legal basis  
On 15 July 2008 the European Central Bank (ECB) r eceived a request from Latvijas Banka for an opinion 
on a draft regulation on lats banknotes and coins (hereinafter the ‘draft regulation’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the first and the second inde nts of Article 2(1) of Council Decision 98/415/EC 
of 29 June 1998 on the consultation of the European  Central Bank by national authorities regarding draft 
legislative provisions1, as the draft regulation relates to currency matters and means of payment. In 
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central 
Bank, the Governing Council has adopted this opinion. 
 1.  Purpose of the draft regulation 
The draft regulation replaces the Regulation on lats banknotes
2 by amending and supplementing its 
provisions. It provides for: (i) the numbering, regist ration, and monetary backing of lats banknotes and 
coins, (ii) the procedure for withdrawing banknotes a nd coins from circulation, (iii) the procedure for 
exchanging damaged banknotes and coins, and (iv) the introduction of special circulation and collector 
coins issued by Latvijas Banka. 
 2. General observations  2.1 While Latvia is a Member State with a de rogation and the ECB requirements regarding the 
organisation of national cash cycles in Member States that have adopted the euro currently do not apply to Latvijas Banka, these requirements will beco me applicable to Latvijas Banka once Latvia 
adopts the euro and Latvijas Banka becomes a fully  integrated member of the Eurosystem. As a 
general comment, the ECB notes that the provisi ons of the draft regulation on replacement of 
banknotes and coins differ to some extent from Euro system practices and that before Latvia adopts 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Regulation on lats banknotes and coins approved by Latvijas Banka Council Resolution No 131/8, 16.11.2006 ( Latvijas 
Vēstnesis , 192 (3560), 1.12.2006) issued in compliance with the first and second part of Article 34 of the Law on Latvijas 
Banka ( Ziņotājs, 22/23, 4.6.1992, in force since 19.5.1992). 
2 the euro3 these provisions will have to be aligned with  Eurosystem standards and, in particular, 
with Decision ECB/2003/4 of 20 March 2003 on th e denominations, specifications, reproduction, 
exchange and withdrawal of euro banknotes4.  
2.2 Under Article 106 of the Treaty, the ECB has the exclusive right to authorise the issue of banknotes 
within the Community, whereas coin s are issued by Member States subject to the ECB’s approval 
of the volume. Consequently, the Eurosystem’s regulatory competence concerns only banknotes. In 
addition, in view of the accession of national cen tral banks (NCBs) to the Eurosystem, the ECB 
supports a clear and consistent separation between national rules relating to banknotes and rules 
relating to coins. Therefore, the ECB consider s that the draft regulation would benefit from 
introducing such consistent internal separa tion between rules concerning banknotes and those 
concerning coins. This would facilitate the legal convergence of the Latvian legislative framework, 
which is necessary for Latvia to become a full participant in economic and monetary union. 
 3. Specific observations  
3.1 Withdrawing and replacing banknotes  
Point 6 of the draft regulation concerning the ra tionale for withdrawing and replacing banknotes 
could be expanded. Changes in the subject matte r and design of banknotes are not only triggered by 
outdated banknotes and counterfe iting problems. Indeed, one of the main aims of updating 
currency design is to modernise banknote security in  view of the latest developments in security 
design and technology. 
3.2 Alignment of Latvian legislation with the ECB’s legal framework  
3.2.1 Point 18 of the draft regulation, which provi des that Latvijas Banka will not replace severely 
damaged banknotes and coins, could be clarified a nd further aligned with Article 3 of Decision 
ECB/2003/4 pursuant to which the status of genuine euro banknotes as legal tender is not affected 
by their physical condition, including such elements as mutilation or damage
5. There are however 
some circumstances in which the exchange of  a mutilated or damaged euro banknote can be 
refused6  
3.2.2 Moreover, regarding banknotes, the draft regula tion specifies that if less than 51% of a banknote is 
presented or if security features and the nominal value cannot be discerned, it will not be exchanged. Such rule differs from the ECB’s rules for euro banknotes, which specify that a 
Eurosystem NCB may exchange a euro banknote for 100% of its face value if more than 50% of 
                                                 
3  See, in particular, ECB Opinion CON/2007/28 of 25 Septembe r 2007 at the request of the President of Narodowy Bank 
Polski on a draft ordinance on the method and procedure for counting, sorting, packaging and labelling packaging units 
of banknotes and coins, and in conducting activities related to the supply of banknotes and coins to banks and ECB 
Opinion CON/2008/26 of 16 June 2008 at the request of Na rodowy Bank Polski on a draft ordinance amending the 
principles and procedure for replacing banknotes and coins which have ceased to be legal tend er in Poland as a result of 
wear and tear or damage. 
4  OJ L 78, 25.3.2003, p. 16. 
5  See Article 3(1) of Decision ECB/2003/4. 
6  See Article 3(3) of Decision ECB/2003/4. 
3 the euro banknote is presented, whether presented in  one piece or not or, alternatively, when 50% 
or less of the euro banknote is presented and the applicant proves that the missing parts have been 
destroyed 7.  
3.2.3 The ECB invites Latvijas Banka to already cons ider aligning national rules to the extent possible 
with the respective transitional regime  for the implementation of the ECB’s Framework for the 
detection of counterfeits and fitness sorting by  credit institutions and other professional cash 
handlers8. In addition, for the purposes of legal clarity, it would be advisable to clarify the scope of 
point 12. The ECB understands that this point applies not only to unfit banknotes and coins but covers also those that are no longer legal tender,  in which case speaking of ‘banknotes and coins in 
circulation’ may be misleading. 
3.2.4 Under point 17, it may be advisable to specify that Latvijas Banka will only replace genuine 
(excluding counterfeit) worn a nd damaged banknotes and coins. 
3.2.5 Regarding point 23, the ECB invites Latvijas Ba nka to take into account possible adaptations of 
and investments in banknote sorting machines that will have the technical ability to sort according 
to ECB sorting criteria, including processi ng of non-faced and non-orientated banknotes.  
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 5 August 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
 
                                                 
7  Article 3(1) of Decision ECB/2003/4. 
8  Available on the ECB’s website at www.ecb.europa.eu. Equivale nt rules for euro coins are contained in the 
Commission’s Recommendation of 27 May 2005 concerning authen tication of euro coins and handling of euro coins 
unfit for circulation (COM(2005) 1540 final).