Opinion of the European Central Bank of 16 July 2014 on the competence for coin issuance (CON/2014/56)
Date: 2014-07-16
Institutions: European Central Bank
Subjects: Cyprus, central bank, government, issuing of currency, money, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 16 July 2014 

on the competence for coin issuance 

(CON/2014/56) 

Introduction and legal basis 

On 20 May 2014, the European Central Bank (ECB) received a request from the Minister of Finance of 

the Republic of Cyprus for an opinion on a draft law amending the Central Bank of Cyprus Laws of 2002 
to 20141 (hereinafter the ‘draft law’).  

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union  and  the  first  and  third  indents  of  Article 2(1)  of  Council  Decision 
98/415/EC2,  as  the  draft  law  relates  to  currency  matters  and  the  Central  Bank  of  Cyprus  (CBC).  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 law 

1.1   The draft law aims to transfer the competence to issue euro coins from the CBC to the Government 

of the Republic of Cyprus (hereinafter the ‘Government’). At present, the CBC has the competence 

to  issue  euro  coins  in  the  Republic  of  Cyprus,  including  the  competence  to  issue  euro 

commemorative and collector coins. This draft law will give the CBC the competence to issue euro 

coins on behalf of the Republic of Cyprus in its function as fiscal agent. 

1.2   The draft law also provides that on the day following the entry into force of the draft law, the CBC 

will  transfer  the  amount  of  the  nominal  value  of  euro  coins  in  circulation  to  the  General 

Government Account, to the credit of the Consolidated Fund of the Republic of Cyprus (hereinafter 

the ‘Consolidated Fund’). In addition, every six months, the amount of the nominal value of euro 

coins  annually  put  in  circulation  by  the  CBC  is  to  be  transferred  to  the  General  Government 

Account,  to  the  credit  of  the  Consolidated  Fund,  after  the  amount  of  the  nominal  value  of  euro 

coins withdrawn from circulation during the same period is deducted. 

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Law 138(I)/2002. 
Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
 
 
                                                 
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2. 

General observations 

According to the Treaty, the right to issue euro coins rests with the Member States3, but the actual issuer 

of the euro coins is not specified. In fourteen euro area Member States issuance of euro coins is a state 
function4 and in five of those euro area Member States the national central banks (NCBs) act as agents for 
their  treasuries  with  regard  to  minting  euro  coins  and  putting  them  into  circulation5.  In  those  Member 

States where the NCBs act as agents for their treasuries, the NCBs are reimbursed in full for the cost of 

minting and/or putting euro coins into circulation. 

3. 

Central bank independence and prohibition on monetary financing 

3.1  Central bank independence  

3.1.1  Article 130 of the Treaty lays down that financial independence is a key aspect of the principle of 

central bank independence for the members of the European System of Central Banks. The ECB 

emphasises  that  any  task  undertaken  by  the  CBC  should  be  compatible  with  its  institutional  and 

financial independence, in order to safeguard the proper performance of its tasks under the Treaty 

and  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central  Bank 

(hereinafter the ‘Statute of the ESCB’) as well as its national tasks. The principle of central bank 

independence  also  requires,  inter  alia,  that  Member  States  do  not  put  their  NCBs  in  a  position 

where they have insufficient financial resources and inadequate net equity to carry out their tasks. 

3.1.2  In this regard, the draft law provides that the CBC will transfer the competence to issue coins to the 
Government and is to simultaneously transfer the nominal value of euro coins in circulation6 to the 

General  Government  Account,  which  is  kept  with  the  CBC.  The  CBC  will  thus  exchange  its 

liability towards the holders of euro coins with a liability towards the Government. The effect of 

the proposed transaction on the CBC’s balance sheet is neutral. However, the CBC will lose one of 
its operations that has generated revenue in the past7 thus it should take this factor into account in 
taking any decision on the allocation of its profits8 in order to safeguard its financial independence. 

3.1.3  The  ECB  understands  from  the  consulting  authority  that  the  CBC  is  to  be  compensated  for  the 

services it provides as the agent of the Government in relation to euro coin issuance. The annual fee 

to be received by the CBC is intended to cover the actual cost of issuing euro coins in the Republic 

of  Cyprus  and  includes  a  service  fee  for  the  performance  of  the  CBC’s  agency  tasks.  The  ECB 

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See Article 128(2) of the Treaty. 
In Cyprus, Estonia, Latvia and Slovakia coin issuance is a competence of the respective national central bank. In Austria, 
the  issuing  authority  for  coins  is  the  Austrian  Mint,  which  is  a  wholly  owned  subsidiary  of  the  Oesterreichische 
Nationalbank. 
Greece, Finland, Ireland, Luxembourg and Malta. 
The nominal value of euro coins in circulation was EUR 99.1 million at 31 December 2013, compared with EUR 96.1 at 
31 December 2012. 
The seigniorage revenue from euro coins may be estimated as the nominal value of coins in circulation multiplied by an 
indicative rate of return, such as the ECB main refinancing operations rate.  
In accordance with the Central Bank of Cyprus Laws of 2002 to 2014 (section 59), 80% of the net profit of the CBC is 
normally  transferred  into  the  Consolidated  Fund  of  the  General  Government  Account,  unless  the  Board  of  the  CBC 
decides an additional withholding of net profits due to exceptional circumstances. 

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understands that in view of the current production needs of new euro coins in Cyprus and current 

production  costs,  according  to  estimates  of  the  CBC,  the  provisionally  agreed  annual  fee  is 

expected to cover sufficiently, with a margin, the estimated annual cost, in the foreseeable future. 

As regards the actual cost of issuing commemorative and collector coins including issue, transfer, 

insurance, storage, management and offer of commemorative and collector coins, the CBC is to be 

reimbursed through the proceeds of sale of such coins. The price of the coins is to be exclusively 

determined by the CBC. Furthermore, the CBC is to benefit from the net profit or assume the net 

loss arising from the sale of such collector and commemorative coins. 

3.1.4  The  ECB  encourages  the  consulting  authority  to  ensure  that  the  fee  to  be  received  by  the  CBC, 

when  acting  as  agent  of  the  Government  in  relation  to  euro  coin  issuance,  will  at  all  times  be  

sufficient to  compensate the CBC in full for all expenses it  will incur in performing the relevant 

tasks (see also paragraph 3.2.6 below). The agreements and/or arrangements between the CBC and 

the Government should, therefore, clearly provide for the adjustment of the fee, if the need arises. 

In this respect, and with a view to safeguarding the CBC’s ability to carry out its tasks in the future 

in line with the principle of financial independence, the ECB encourages the consulting authority to 

insert a provision in the draft law expressly stating that the CBC will be compensated in full and in 

a timely manner for all expenses it will incur in relation to euro coin issuance. 

3.2  Prohibition on monetary financing 

3.2.1  The  monetary  financing  prohibition  is  laid  down  in  Article  123(1)  of  the  Treaty,  replicated  in 

Article 21.1 of the Statute of the ESCB, and prohibits overdraft facilities or any other type of credit 

facility  with  the  ECB  or  the  NCBs  in  favour  of  Union  institutions,  bodies,  offices  or  agencies, 

central  governments,  regional,  local  or  other  public  authorities,  other  bodies  governed  by  public 

law, or public undertakings of Member States. The monetary financing prohibition also prohibits 

the purchase of debt instruments directly from such public sector entities by the ECB or NCBs. The 

precise  scope  of  application  of  the  monetary  financing  prohibition  is  further  clarified  by 

Regulation (EC) No 3603/93. 

3.2.2  Article 6 of Regulation (EC) 3603/93 provides that NCBs holding euro coins issued by the public 

sector and credited to the public sector are not regarded as a credit facility within the meaning of 

Article 123 of the Treaty where the amount of these assets remains at less than 10% of the coins in 

circulation. Functions performed by NCBs when acting as agents of the Government must be fully 

compliant with the monetary financing prohibition and such functions must not imply any form of 

overdraft facility to the public sector. 

3.2.3  The ECB understands that under the draft law, the CBC will not hold coins issued and credited to 

the public sector, in a way that would be contrary to the provisions of Article 6 of Regulation (EC) 

No 3603/93. Pursuant to the provisions of the draft law, the amount of the nominal value of coins 

that are put into circulation during a calendar year will be transferred to the Government on 30 June 

and 31 December of that calendar year and this does not involve issuing any credit to the public 

sector.  

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3.2.4  Furthermore,  Article  123(1)  of  the  Treaty,  in  conjunction  with  Article  1(1)(b)(ii)  and  (iii)  of 

Council  Regulation  (EC)  No  3603/93,  also  prohibits  central  banks  from  providing  overdraft 

facilities  or  any  other  type  of  credit  facility  to  the  public  sector,  including  any  financing  of  the 

public  sector’s  obligations  with  regard  to  third  parties  or  any  transaction  with  the  public  sector 

resulting or likely to result in a claim against that sector. 

3.2.5  The effect of the provisions of the draft law is to transfer the assets and liabilities associated with 

the competence for coin issuance from the CBC to the Government. The ECB understands that the 

economic effect of the proposed transfer of the competence to issue coins to the Government will 

be that the Government will receive cash deposited in the General Government Account with the 

CBC that it can start to use immediately. At the same time, the Government will become liable to 

the holders of euro coins and such liability will materialise only when the coins are returned and to 
the extent they are returned, if ever9. As a result, the liquidity situation of the Government will be 

improved while its debt level will increase. As this transfer by the CBC does not appear to have the 

common characteristics of an overdraft facility or other type of credit facility, the ECB considers 

the  draft  law  to  be  compliant  on  this  point  with  the  monetary  financing  prohibition  from  a  legal 

perspective.  The ECB will review any further transactions that might ensue from the transfer of the 

competence to issue coins from the CBC to the Government, in the context of its monitoring of the 

compliance of central banks with Articles 123 and 124 of the Treaty. 

3.2.6. Functions of the NCBs performed outside the  scope of the Statute of the ESCB comply with the 

prohibition on monetary financing provided that the NCBs act as agents and that such functions do 

not  constitute  central  bank  financing  of  public  sector  obligations  with  regard  to  third  parties  or 

central  bank  crediting  of  the  public  sector  outside  the  narrowly  defined  exceptions  specified  in 

Regulation  (EC)  No  3603/93.  National  legislation  should  not  require  an  NCB  to  finance  the 

performance  of  tasks  incumbent  on  the  Government,  without  ensuring  that  the  Government  will 

compensate the NCB in full for the discharge of such tasks. In this respect, the ECB reiterates that, 

in order to comply with the monetary financing prohibition, it should be ensured that the fee to be 

received by the CBC will at all times be sufficient to compensate the C BC in full for all expenses 

it  will  incur  in  performing  the  relevant  tasks  (see  also  paragraph  3.1.4  above).  From  this 

perspective, on the basis of the current estimates of the CBC (referred to in paragraph 3.1.3 above), 

the ECB understands that  the provisionally agreed annual fee is  expected to be sufficient,  with a 

margin, in the foreseeable future and therefore  complies with the monetary financing prohibition. 

The ECB will review the adequacy of the fee on an annual basis, in the context of the monitoring of 

the compliance of central banks with Articles 123 and 124 of the Treaty.  

3.3  Commemorative and collector coins 

In  accordance  with  section  2  of  the  draft  law,  the  CBC  will  issue,  as  agent  for  the  Government, 

coins to be circulated as legal tender in the Republic of Cyprus. The ECB understands that the CBC 

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In the future, the Government can write off all unreturned coins after a certain period once the coins cease to be legal 
tender and thereby make a profit equal to the unreturned cash coins that ceased to be legal tender.  

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will  also  issue,  as  agent  for  the  Government,  commemorative  coins  intended  for  circulation  and 

collector  coins  that  are  not  intended  for  circulation.  The  ECB  would,  in  this  respect,  invite  the 

consulting authority to consider amending that specific section of the draft law in order to cater for 

the issuance by the CBC, as agent for the Government, of collector coins which, although having 

the status of legal tender in the Republic of Cyprus, are not intended for circulation. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 16 July 2014. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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