As demonetisation fever rises across the world, a look at respective Central Banks’ laws on demonetisation…

After inspiring Venezuela, Indian could inspire Australia too. Though, Australian one already under the pipeline, it is unlikely to shock  as it did in India. Whatever anyone chooses to do now, the shock and awe title clearly belongs to India as of now.

As the recent demonetisation in India was driven  using the Indian Central Bank Act, it is interesting to what other central bank acts have to say on demonetisation/withdrawal.

So this blog tried to read through several central bank acts. Some initial findings:

  • Only Mauritius and Philipines mention the word demonetise/demonetisation in their acts. Within these two, only Mauritius clearly has a section named as Demonetisation of currency notes and coins
  • Most countries call this withdrawal, if at all.
  • The powers to withdraw or demonetise are murky to say the least just like they were in India. The withdrawal or exchange is mainly provided in case of damaged notes.
  • Most say withdrawal to be done by Board or Ministry,  in Poland the President of the Bank can do it.
  • The information is to be published in Gazette of following countries : Pakistan, South Africa, New Zealand, Mauritius and Oman. This is due to the British colonial legal system which continues to be followed.
  • Some countries like New Zealand have clear punishment laws for anyone doing currency production other than their central bank.
  • Some countries also have clear laws on period under which ceased notes shall be accepted like Oman, Denmark, Norway etc. Most of the time this period is one year.

These are just some initial bits of information. Much more needs to be expanded and learnt.

Here is a list of central banks and the specific sections picked from their acts which deals with the subject. It is randomly done and not in any order. I will try and expand on this as and when. Request the readers to add as well..

Norges Bank

Chapter III. Means of payment

Section 15. Withdrawal of currency

The Bank may issue regulations specifying that notes of a certain series and denomination or certain coin shall be withdrawn from circulation.

Notes and coin that are withdrawn from circulation cease to be legal tender one year after the withdrawal has been announced. The Bank is obliged to redeem notes and coin handed in within ten years of the expiry of this time limit.

Philipines

SEC. 56. Replacement of Currency Unfit for Circulation.

The Bangko Sentral shall withdraw from circulation and shall demonetize all notes and coins which for any reason whatsoever are unfit for circulation and shall replace them by adequate notes and coins: Provided, however, That the Bangko Sentral shall not replace notes and coins the identification of which is impossible,coins which show signs of filing, clipping or perforation, and notes which have lost more than two-fifths (2/5) of their surface or all  of the signatures inscribed thereon. Notes and coins in such mutilated condition shall be withdrawn from circulation and demonetized without compensation to the bearer.

 

South Korea

Article 52 (Exchange of Bank of Korea Notes)

(1)The Bank of Korea shall meet a demand for exchange between denominations as far as circumstances in Bank of Korea notes permit.

(2)The Bank of Korea shall exchange any Bank of Korea note unsuitable for circulation due to damage, contamination or any other cause with a new note.

 

Indonesia

Article 23

(1) Bank Indonesia may revoke and withdraw rupiah money from the circulation with a compensation of the same value.

(2) In the event that within 5 (five) years after the date of revocation as referred to in paragraph (1) there is still a sum of currency which has not been exchanged, the value of such currency shall then be calculated as revenues of the current fiscal year.

(3) The currency which was exchanged after the end of such term as referred to in  paragraph (2) shall be calculated as expenditures of the current fiscal year.

(4) The right to claim the exchange of currency which has been revoked, shall no

longer be valid after a period of 10 (ten) years since the revocation date.

(5) The implementation of such revocation and withdrawal of currency from the circulation as referred to in paragraph (1) shall be prescribed by Bank Indonesia Regulation.

Japan

 

(Printing and Cancellation of Bank of Japan Notes)

Article 49 (1) The Bank of Japan shall : shall determine the procedure / summary procedures, procedures for printing and canceling Bank of Japan note Bank of Japan notes and submit those procedure/ procedures to the Minister of Finance for approval. The same shall apply when making any change to the procedure / summary procedures.

Pakistan (quite similar to RBI Act)

25. (1) Subject to the provisions of sub-section (2) every Bank Note shall be legal tender at any place in Pakistan for the amount expressed therein and shall be guaranteed by the Federal Government.

(2) On the recommendation of the Central Board the Federal Government may, by notification in the official Gazette, declare that, with effect from such date as may be specified in the notification, any series of Bank Notes of any denominations shall cease to be legal tender and exchangeable:

Provided that any Note of such series may, within such period after the date so specified as the Federal Government may, by a like notification, appoint in this behalf, be tendered for exchange at such offices, branches and agencies, if any, of the Bank as may be specified for the purpose, and any such office, branch or agency shall exchange the note.

Sweden

Chapter 5 Notes and Coins

Art. 4. Banknotes and coins that are damaged or worn may be redeemed by the Riksbank. The Riksbank may pay compensation for banknotes that are completely spoiled. In special circumstances, the Riksbank may redeem banknotes and coins that have ceased to be legal tender.

Art. 5. Banknotes and coins that have been altered or manipulated must not be circulated.

 

Switzerland (nothing on withdrawal)

Art. 4 Exclusive right to issue banknotes

The National Bank shall have the exclusive right to issue Swiss banknotes.

 

ECB

The withdrawal of a euro banknote type or series shall be regulated by a decision of the Governing Council published for general information in the Official Journal of the European Union and other media. This decision shall cover, as a minimum, the following points:

— the euro banknote type or series to be withdrawn from circulation, and

— the duration of the exchange period, and

— the date on which the euro banknote type or series will lose its legal tender status, and

— the treatment of the euro banknotes presented once the withdrawal period is over and/or they have lost their legal tender status.

 

Russia

Article 31. Bank of Russia banknotes and coins may not be declared invalid (no longer legal tender) without establishing a sufficiently long period of their exchange for new Bank of Russia banknotes and coins. No restrictions shall be imposed on the sum or subject of the exchange.

When old Bank of Russia banknotes and coins are exchanged for new Bank of Russia banknotes and coins, the period of the withdrawal of banknotes and coins from circulation may not be shorter than one year but no longer than five years.

Article 32. The Bank of Russia shall exchange worn or damaged banknotes without any restrictions in compliance with its rules.

Article 33. The Board of Directors shall take the decision to issue new Bank of Russia banknotes and coins and withdraw old Bank of Russia banknotes and coins from circulation and approve the denominations and specimens of new currency. The description of new banknotes and coins shall be published in the media.

The State Duma and the Russian Federation Government shall be notified of such a decision in advance.

South Africa

14 (1) The Bank shall have the sole right to issue or cause to be issued banknotes and coins in the Republic: Provided that all coins which at the commencement of the South African Reserve Bank Amendment Act, 1989, were lawfully in circulation and legal tender in the Republic, shall as such remain in circulation until they are withdrawn from circulation in accordance with the provisions of section 19, or are no longer of the current mass prescribed in Schedule 2 in respect of the denomination in question.

  1. Powers of Minister in respect of coins

(1) The Minister may from time to time by notice in the Gazette

(a) determine the dimensions of and design for any coin as well as the compilation of any series of coins; and

(b) authorize the withdrawal from circulation of-

(i) so many coins as he may deem to be in excess of requirements;

(ii) coins of a specified date or of specified dates or of a specified denomination or of specified denominations

 

New Zealand

26 Power of Bank to call in currency

(1) The Bank may, from time to time, with the prior consent of the Minister, by

notice in the Gazette, call in any bank notes or coins issued or deemed to have been issued under this Act.

(2) Every notice shall take effect on a date specified in it.

(3) When the notice takes effect, all bank notes or coins to which it applies shall cease to be legal tender; but the Bank shall continue to be liable to pay any such bank note or coin on presentation at the head office of the Bank.

(4) The Bank shall continue to be liable to pay any bank note issued before the commencement of this Act which has ceased to be legal tender before the commencement

of this Act and which the Bank was, immediately before the commencement of this Act, liable to pay, on presentation at the head office of the Bank.

 

Australia

Issue, re-issue and cancellation of notes

(1) Subject to this Act, the Bank may:

(a) issue Australian notes;

(b) re-issue Australian notes; and

(c) cancel Australian notes.

(2) Australian notes shall be printed by, or under the authority of, the Bank.

 

Canada (Nothing on withdrawal)

25(1) The Bank has the sole right to issue notes and those notes shall be a first charge on the assets of the Bank.

.

Sri Lanka

  1. The Central Bank shall withdraw from circulation and shall cancel all currency notes and coins which for any reason whatsoever Replacement of currency unfit for circulation and shall, as soon as practicable and subject to such rules and regulations as may be made in that behalf by the Monetary Board with the approval of the Minister in charge of the subject of Finance, replace them by the delivery in exchange of fit notes and coins.

 

Mexico

ARTICLE 25.- Banco de México shall determine the conditions under which credit institutions must exchange and withdraw banknotes and metallic coins in circulation.

 

Chile

Section 32. The Bank shall withdraw from circulation the banknotes and coins in poor condition. The damaged banknotes clearly keeping over half of their original text may be exchanged at the Bank at their nominal face value; should they have a lesser percentage, they may be exchanged at their nominal face value provided the Bank is satisfied with the evidence presented that the missing portion has been totally destroyed. The Bank shall not be compelled to exchange damaged banknotes not covered by the preceding paragraph.

 

Section 33. The banknotes and coins definitively withdrawn from circulation shall be destroyed in the manner determined by the Board and shall cease to have, as of said moment, discharge effect or be legal tender. The General Manager shall ensure that the destruction is uniform and that complete control and security measures are adopted as deemed necessary to duly safeguard the correction of the process.

 

Mongolia

Article 9. Activities of the Bank of Mongolia related to monetary unit 1. The Bank of Mongolia shall conduct activities to ensure the proper structure of the currency by issuing and withdrawing currency from transaction. 2. The Bank of Mongolia shall organise and procure the production, delivery, safekeeping and reserve maintenance of the currency and shall determine the validity of currency and replace and destroy unfit currency. 3. The Bank of Mongolia shall establish a procedure for replacement of unfit currency. It is prohibited to destroy any currency without the approval of the Bank of Mongolia.

 

Nigeria

  1. (3) Notwithstanding subsections (1) and (2) of this section, the Bank shall have power, if directed to do so by the President and after giving reasonable notice in that behalf, to call in any of its notes or coins on payment of the face value thereof and any notes or coins with respect to which a notice has been given under this subsection, shall, on the expiration of the notice, cease to be legal tender, but, subject to section 22 of this Decree, shall be redeemed by the Bank upon demand.

 

Czech Republic

Article 19 (1) The Czech National Bank may declare invalid and withdraw from circulation any banknotes and coins it has issued. It shall refund their par value by exchanging them for other, newly issued banknotes and coins. The period over which such exchange may take place shall not be less than five years, save as otherwise provided in another legislative act.

 

(2) At the end of the exchange period, the sum total of the banknotes and coins that have been declared invalid but have not been presented for exchange shall be deducted from the amount of money in circulation that appears in the accounts of the Czech National Bank. This sum shall be income to the Czech National Bank.

 

Poland

Article 33

  1. The President of NBP may withdraw particular banknotes and coins from circulation. As of the date set by the President of NBP, such banknotes and coins shall cease to be legal tender on the territory of the Republic of Poland, and shall be subject to replacement at banks designated by the President of NBP.

Article 34 15 1. The banknotes and coins which do not fulfil the conditions set by the President of NBP because of being worn or damaged, shall cease to be legal tender on the territory of the Republic of Poland and shall be subject to replacement. 2. The President of NBP shall specify, by regulation, the detailed principles and procedure for the replacement of banknotes and coins referred to in para. 1

Denmark

The notes issued by the Bank shall be legal tender between man and man and for payments and disbursements which take place in public pay-offices. When the Minister of Trade, Industry and Shipping gives his permission notes may be called in, and they shall then cease to be legal tender from the date which might be fixed by ordinance from the Minister of Trade, Industry and Shipping. After the expiration of twelve months from this date the called in notes shall lose the validity as against the Bank, provided that the Bank shall have the right to redeem the notes also after this time if circumstances justify it.

Iceland

Article 5 The banknotes and coin issued by the Central Bank shall be legal tender for all payments at full nominal value.

 

Mauritius

  1. Demonetisation of currency notes and coins

(1) Subject to subsection (2), the Board may, by publication in the Gazette, declare that any currency note or coin shall cease to be legal tender and provide for any matters incidental to the calling in and demonetisation of such currency notes or coins.

(2) The holder of any demonetised currency note or coin, referred to in subsection (1), may, within such time and upon such conditions as may be determined by the Board and published in the Gazette, claim payment of the face value of such notes and coins from the Bank.

 

Oman

45 d The Board of Governors may authorize the Central Bank to terminate use of currency notes or coins as legal tender by publishing a notice in the Official Gazette setting the date on which such currency note and coin shall cease to be legal tender. Until the date on which such note or coin shall cease to be legal tender, the Central Bank shall tender payments of the face value of the note or coin upon surrender thereof, provided, however, that if such date is less than 360 days from the date on which notice is published in the Official Gazette, payment shall be tendered for a period of 360 days from the date of such publication.

Addendum:

Israel

45 Canceling and Replacing Banknotes and Coins

(a) The Governor may issue an order, with the approval of the Knesset Finance Committee, determining that banknotes and coins specified in the order shall cease to be legal tender in Israel (in this Section— Cancellation Order).

(b) A person who, during the period set forth in the Cancellation Order, delivers to the Bank, or to whomever the Governor designates in said Order, banknotes or coins that have ceased to be legal tender according to the Order, is entitled to receive legal tender of equal value in exchange therefor; the Governor may establish in the Cancellation Order a fee that shall be charged in this regard.

(c) A Cancellation Order shall not derogate from any statute that determines the unit of Currency or any division thereof.

(d) Once a Cancellation Order has been issued, wherever any amount is payable in cash and said payment can be made only by using a cancelled banknote or coin, such amount shall be rounded to the nearest amount that can be paid in legal lender, and where it can be rounded either upwards or downwards, it shall be rounded upwards.

(e) A Cancellation Order may determine that the provisions of Subsection (d) shall apply also to a non-cash payment and an entry into a book of accounts, either compulsorily or at the option of the person making said payment or entry.

(f) The Governor may determine, in rules, provisions for the withdrawal from circulation of Currency damaged through use or destroyed and for its replacement under conditions determined in the rules; rules regarding a fee for such replacement that the Bank shall charge therefor shall be determined with the approval of the Knesset Finance Committee.

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