The “Law on social and solidary based economy” (Loi relative à l’économie solidaire et sociale – acronym LESS) has been amended to introduce legislation for complementary local currencies (monnaies locales complémentaires, here after local complementary currencies or LCC’s).

The amendment offers to include in the French monetary and financial code (CMF) two new articles (articles L311-5 et L311-6). 

The purpose of the first article (L311-5) is to allow a Social and Solidarity based economy undertakings (label acronym in French - EESS) to issue and to manage community currencies.

           

The second article (L311-6) then states that “when” a community currency “pertains to” payment services or electronic money then it must be issued and managed by a bank.

How the proposed law works

The legal system (at least the continental civil/written law systems) works by “qualifying” or “classifying” real things, practices or facts by entering them in a legal category. To enter the legal category an item has to obey a legal definition ("electronic money" means electronically […] stored monetary value…). Once the items have a legal qualification they belong to a legal category. The items of designated category then have to obey the legal regime attached to that category: that is a set of rules that indicate that apply to their activity (“electronic money issuers redeem, at any moment…”).  

Therefore the crucial fight in legislation is making sure that a real practice gets the appropriate classification in law.  

The future law does not define community currencies (art. L.311-5). This, of course, is not surprising since any attempt to define the social dynamics that money engages with seems impossible. Therefore the article proceeds to rely on an outside definition of the legal category of CCs.

That is precisely the problem with the proposed French law.

The CC’s have a twofold definition: first they are defined by their issuer (here an EESS labelled undertaking).

Secondly and unfortunately, they are defined as a legal exception to the category of commercial means of payments (payment services and electronic money in EU law). This means that as soon as they are considered as belonging to such a category they will have to obey the regime. The only clear legal regime here is that the issuer will have to become a bank by asking for a banking license. It is not certain however to what extend local currencies would have to obey other payment instrument legislation (and emoney legislation).

Implications of the proposed French law

The French law would lay down a precedent by assimilating local currencies to commercial means of payment (payment services, electronic money and French legislation on paper gift cards).

Moreover, the plain legal exemption for EESS would be of little meaning since it would be applied as a minor exclusion from payment services legislation. The issuer only has a very limited exemption regarding this legislation.

It is not stated that local currencies should not be seen as competition to commercial payment systems.

In the present writing of the legal proposal, community currencies as means of payment will have to obey the exemption criteria as they are set in EU legislation as transposed in national legislations. The authority responsible for applying these criteria is the French banking regulator (Autorité de contrôle pruidentiel et de réglement, ACPR).

Moreover even when the exemption criteria are met, the French banking regulator has been granted the right by the administrative Supreme Court to monitor practices of exempted payment services. That means that it has a right to apply its banking culture to exempted institutions. This could seem logic for gift card schemes and other commercial services that obey the exemption criteria according to legislation:

“services based on instruments that can be used to acquire goods or services only in the premises used by the issuer or under a commercial agreement with the issuer either within a limited network of service providers or for a limited range of goods or services”;

The Banking regulator’s policy has been extended to CC. Indeed, it has been very keen on looking into CC practices and laying boundaries in reference to payment services legislation. Moreover, the Banking regulator issued a policy notice last October that states out these limitations for paper instruments and electronic instruments by relying on commercial emoney legislation.

Differences between legal money and social dynamics of community currencies

Legislation on commercial activity relating to payment instruments of the official currency (payment service, electronic money directives) has been designed for competition between banking and financial institutions for the transfer of funds (currency units). Therefore among the objectives of this legislation protecting confidence in the monetary payment system is primary.  But it also pursues the leveling the playing field for competition standards (including antitrust law and unfair competition), consumer protection from unfair commercial practices, etc.

These restrictions are justified for high volume commercial activity.

On the contrary, most CCs do not have a high volume – monetary circulation is prime. Relying on a social dynamic, they include a lot of people, but not much capitalization. Their purpose is to discover and activate social energies that monetary systems trigger in a group. Yet, the ability to implement – and explore – the infinite variety of these social dynamics for local purposes depend on the legal framework in which they are able to evolve.

Finally, the more the law differentiates between national currency and local community money, the more innovation will emerge. Indeed, it is understood – it is a personal belief – that the framework in which people think is guided, at least somehow, by social norms and shared common knowledge. The more conscience of what money can do to a community, the more people will be able to invest themselves in its various dynamics. Law is therefore, among other social norms, a vector for the evolution of cultural perception of monetary phenomenon.

A safe harbor for community currencies

A legislative safe harbor for community currencies means that granting a special status that allows for local experimentation. Therefore in order to achieve such a differentiated legal framework, it seems that: 

-          Community currencies should not be considered as means of payment (or payment services). If a community currencies issuer was to compete on a same market with a commercial currency, he could expose himself to unfair commercial practices and reclassification of his activity.

-          Community currencies should not be defined by reference to payment services or an exemption of such: to exempt means that of two things of a common nature, one does not obey all the rules of the first. The nature of CCs is not to be commercial payments services.

Since, the public interest requires that sometime in the future, that grown up and successful community currencies (or actual ambitious B2B currencies), should be subjected to a regulator, I have these questions:

-          Which regulator should oversee CC issuers :

o   The banking regulator (seems legitimate for important B2B currencies)

o   a regulator of another sector such as one for social/non profitable undertakings:  it could be the regulator of charity activities, or the regulator for social and solidarity based understakings…

   

-          When and how should community Currency issuers be subject to legislation?

o   NOT be by comparison to commercial payment services.  

o   Therefore when and how? Since defining local currencies is impossible, what about a money issuing cap above which special rules would apply?

§  100 000 euros? 1 millions euros? 5 millions euros (like the little emoney issuer authorisation in the EU directive?)

§  Other terms for capping or limitation? 

o   Registration only?

§  Name of the managers? Proof of no criminal wrong doing?

o   Registration and anti money laundering processes?

o   Registration and prudential rules i.e. depositing legal currency in a bank account for instance

§  How much 100%, or anything under?

§  a fraction of the currency in circulation (there again by comparison to the emoney directive)?

§  Anything else?

Of course, if you know of any foreign legislation on community currency, I would be happy to read it (in French or English).

Please do not hesitate to comment or make contact.

Cheers

Romain

Twitter : @rzanolli