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)
Date: 2008-08-05
Institutions: European Central Bank
Subjects: Latvia, euro, issuing of currency, money, national law

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) received 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 indents 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  banknotes2  by  amending  and  supplementing  its 

provisions.  It  provides  for:  (i)  the  numbering,  registration,  and  monetary  backing  of lats  banknotes  and 

coins,  (ii)  the  procedure  for  withdrawing  banknotes  and  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  derogation  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 become 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  provisions  of  the  draft  regulation  on  replacement  of 

banknotes and coins differ to some extent from Eurosystem practices and that before Latvia adopts 

1  
2  

OJ L 189, 3.7.1998, p. 42.  
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). 

 
 
 
 
 
                                                 
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 the 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 coins 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  central  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  considers  that  the  draft  regulation  would  benefit  from 

introducing  such  consistent  internal  separation  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  rationale  for  withdrawing  and  replacing  banknotes 

could be expanded. Changes in the subject matter and design of banknotes are not only triggered by 

outdated  banknotes  and  counterfeiting  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  provides  that  Latvijas  Banka  will  not  replace  severely 

damaged  banknotes  and  coins,  could  be  clarified  and  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 damage5. 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 regulation 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  

4  
5  
6  

See, in particular, ECB Opinion CON/2007/28 of 25 September 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  Narodowy  Bank  Polski  on  a  draft  ordinance  amending  the 
principles and procedure for replacing banknotes and coins which have ceased to be legal tender in Poland as a result of 
wear and tear or damage. 
OJ L 78, 25.3.2003, p. 16. 
See Article 3(1) of Decision ECB/2003/4. 
See Article 3(3) of Decision ECB/2003/4. 

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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 consider 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 and damaged banknotes and coins. 

3.2.5  Regarding  point  23,  the  ECB  invites  Latvijas  Banka  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 processing 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  
8  

Article 3(1) of Decision ECB/2003/4. 
Available  on  the  ECB’s  website  at  www.ecb.europa.eu.  Equivalent  rules  for  euro  coins  are  contained  in  the 
Commission’s  Recommendation  of  27  May  2005  concerning  authentication  of  euro  coins  and  handling  of  euro  coins 
unfit for circulation (COM(2005) 1540 final). 

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