Legal Tender: Also on the Legal Tender Nature of Central Bank Digital Currency in China

Abstract

Legal tender is a manifestation of the national power to regulate monetary value, which pursues to ensure the smooth operation of the undervalue money.The legitimacy of legal tender is originated from the “strictly compulsory use” under the royal monetary prerogative, and it has undergone a transformation from the “acceptance by the nation” to “tender by the private person” under the constitutional law, which shows a growing respect for private choice of payment instruments. Currently, its modern significance lies in guaranteeing the operation of the multi-level monetary payment system dominated by national currency.Legal tender applies to the money issued by the nations or intergovernmental international organizations as a medium of exchange and as unlimited forms. More importantly, the nature of legal tender does not directly forbid the parties to refuse to accept the national currency. In terms of the debts of public law, the national currency has a strict legal tender effect. On the other hand, in terms of the debts of private law, if the parties do not agree on a specific method of payment, the full amount paid by the debtor in the national currency shall be deemed as the proper performance of the contract. Besides, the market operator may unilaterally refuse to accept the national currency under certain circumstances, including conforming to the transaction customs, “reasonable or fair”, and necessary procedures.The legislation of legal tender in China （Renminbi） has the characteristics of “strict compulsory use” and “tender”; In practice, the law enforcement of legal tender has shown the deviation from the legislation as well as differences in policy choices of relevant government departments, which is not conducive to the orderly circulation of Renminbi. Therefore, the legislation of legal tender should be improved from multiple aspects, including continuing to maintain the legal tender nature of Renminbi, imposing a limit on the amount of legal tender of certain currencies, and adding exceptions to allow the exclusion of the validity of legal tender. In addition, we should combine the legal scope of substitute tickets or securities prohibited by law with the legal tender.The double issuing mechanism and the similar legal nature with respect to cash determine that the central bank digital currency to be issued in China should be defined as limited legal tender. The limited legal tender is reflected in the statutory restrictions on the amount of legal tender which can guide users to use the central bank digital currency only in the retail sector, and the payment purposes such as poverty relief and public welfare projects. On the other hand, the law should allow the parties to bilaterally agree or the market operator to unilaterally exclude the legal tender of the central bank digital currency, but the unilateral exclusion should only include not using Renminbi for legitimate reasons and having been fully informed in the situation.