Concept and Legal Significance of Money
Money is a central element of economic life and fulfills fundamental functions in a legal context. It is a bearer of value, either documented or recognized as legal tender, serving as a means of exchange, a unit of account, and a store of value. The legal perspective on money encompasses national and international regulations, numerous legal fields, and various forms, including cash and scriptural money.
General Overview of the Legal Concept of Money
Definition and Basic Functions
From a legal point of view, money refers to all units of value generally recognized as a means of payment in transactions, which function as a medium of exchange based on statutory provisions or actual general acceptance. Money differs from other assets in that it is used for the final settlement of monetary debts (fulfillment function).
The legally recognized main functions of money are:
- Means of Payment Function: Money is used to settle monetary debts and as consideration in legal transactions.
- Unit of Account Function: Money measures and compares the value of legal claims and obligations.
- Store of Value Function: Money allows value to be hoarded and used at a later time.
Distinction Between Cash and Scriptural Money
Legally, money is differentiated between physical money (cash) and scriptural money (giro money):
- Cash: Includes banknotes and coins issued by a state-recognized monetary authority and accepted as legal tender by law.
- Scriptural Money: Refers to deposits held at credit institutions that can be transferred through simple bookkeeping processes (transfer, direct debit, card payment).
Legal Basis and Regulations
Legal Tender
In the member states of the European Union, including Germany, Art. 128 TFEU together with §§ 14 et seq. of the Bundesbank Act governs the issuance of euro banknotes and coins as the only unlimited legal tender. This generally obligates creditors to accept them, although exceptions may apply in individual cases through agreements (e.g., in retail).
Coin Act and Banknote Act
- Coin Act (MünzG): Regulates the issuance, circulation, and mandatory acceptance of euro coins.
- Bundesbank Act (BBankG): Determines the powers of the Deutsche Bundesbank regarding the issuance of euro banknotes.
Monetary Debts and Fulfillment
The term money is centrally anchored multiple times in the German Civil Code (BGB). Pursuant to § 270 BGB, monetary debts are generally structured as debts to be sent, i.e., the debtor bears the risk until the money has been properly delivered to the entitled recipient.
Place of Performance and Day of Payment
The place of performance for payment of monetary debts can be contractually determined; otherwise, the statutory provision of § 270 para. 4 BGB applies. Timely payment is determined by the credit entry at the recipient. Special rules apply to bank processing times and expiration of deadlines.
Means of Payment in Legal Transactions
In legal transactions, money is transferred via various instruments, including:
- Cash Payment: Delivery of banknotes and coins.
- Transfer, Direct Debit, Payment by Credit/Debit Card: Transfer of scriptural money in fulfillment of monetary debts.
Electronic Money (E-Money)
Electronic money (e-money) is defined in § 1 para. 2 Payment Services Supervision Act (ZAG) as any monetary value stored in electronic form that is issued in exchange for a payment of money. It is subject to its own regulatory requirements, such as the licensing obligation for e-money institutions.
Money in International Law
In cross-border payment transactions, the relevant provisions of international private law and international agreements prevail (e.g., SEPA frameworks for EU payments). For foreign exchange transactions and currency conversion, additional bilateral and multilateral agreements under international law apply.
Functions of Money in Private Law
Fulfillment of Monetary Claims
Monetary debts must be settled according to §§ 241 et seq. BGB. It is important to distinguish between monetary debt and compensation in value, for example in the context of damages or indemnity payments. In insolvency proceedings, the conversion of all creditors’ claims into money means that money serves as the decisive unit of valuation (§ 45 InsO).
Money in Property Law
In property law, money occupies a special position. Banknotes and coins are movable things within the meaning of § 90 BGB, but special legal provisions apply regarding the transfer of ownership as per §§ 929 et seq. BGB. Due to their multiplicity and interchangeability, acquisition of ownership of banknotes is generally seen as ‘in terms of value’ only; the loss of specific notes is usually irrelevant.
Money and Criminal Law
Money is the subject of several criminal offenses. Counterfeiting money (§§ 146 et seq. StGB), unauthorized production or dissemination of means of payment, and money laundering (§ 261 StGB) are independent criminal offenses aimed at protecting the integrity of the monetary system.
Money in Tax Law
In tax law, money serves as the assessment basis for numerous taxable facts. Monetary debts can, according to § 224 Fiscal Code (AO), be settled by various payment methods (transfer, cheque, cash payment). Non-payment may result in enforcement measures.
Monetary payments are treated differently for tax purposes as income (§ 2 Income Tax Act), taxable turnovers (Value Added Tax Act), or taxable receipts.
Money in Business Law
Payment Services Supervision and Anti-Money Laundering
The Payment Services Supervision Act (ZAG) and the Anti-Money Laundering Act (GwG) establish comprehensive requirements for payment service providers and financial institutions to combat money laundering and terrorist financing. These provisions mandate the identification of contracting parties, the recording of information, and reporting obligations for suspicious transactions.
Restrictions on Payment Transactions
In the context of sanctions, embargoes, and cross-border money transfers, there are legally mandated reporting thresholds and restrictions. These govern the conditions under which funds may be transferred, imported, or exported (e.g., § 12 Foreign Trade and Payments Act).
Development and Digitalization of the Money Concept
Virtual Money and Cryptocurrencies
Virtual currencies and so-called cryptocurrencies are increasingly used as means of exchange. Legally, however, they are not considered legal tender, but are classified as units of account under § 1 para. 11 Banking Act (KWG) and are subject to banking supervision regulations.
Future Developments
With the introduction of the digital euro or other state-backed digital currencies, new legal foundations are being established, which will require future changes in regulation, payment transactions, and the transfer of ownership of “digital” money.
Literature and Further Regulations
For a more in-depth legal analysis of the concept of money, the relevant statutes (BGB, BBankG, ZAG, MünzG, InsO, AO, GwG), European regulations (e.g., Regulation (EC) No. 974/98 on the introduction of the euro), as well as commentaries and monographs are recommended.
Summary:
The concept of money has diverse forms and functions in law. It is a central element in contract formation, is at the core of property law, is protected under criminal law, and is flanked by numerous supervisory and tax regulations. The significance of money continuously evolves along with technological and economic changes.
Frequently Asked Questions
Do I have to pay tax on cash proceeds from private sales?
Whether cash proceeds from private sales must be taxed depends on the type and extent of the sales as well as on German income tax law. If private items such as used furniture, clothing, or household appliances are sold, the proceeds are generally not subject to income tax, provided there is no commercial trading. However, if sales exceed a minimal threshold, are regularly repeated, and are carried out with the intention of making a profit, the tax office may deem it a commercial activity. This means that the proceeds must then be taxed, and business tax and VAT obligations may arise. There are also special provisions for certain assets, such as in private disposal transactions (speculative transactions), for example, with cryptocurrencies, precious metals, or real estate, where statutory holding periods must be observed. Sales within this period may be subject to tax. It is advisable to keep sales receipts in case of inquiries from the tax office.
Can debts be repaid in cash?
According to § 14 of the Bundesbank Act (BBankG), euro banknotes are the only unlimited legal tender in Germany. This basically means that debts can be settled in cash. However, there are exceptions, such as contractual agreements specifying another mode of payment (e.g., transfer), or where an individual creditor has justified reasons to refuse cash (e.g., for very large amounts to comply with anti-money laundering regulations). There are also maximum limits in certain business sectors—for example, property purchases, which as of August 2021, under the Money Laundering Act (§ 16a GwG), may no longer be conducted in cash. In everyday life, however, payment of debts, especially in the private sector, is easily possible in cash.
What legal requirements apply to cash donations?
Donation law distinguishes based on who receives the donation and how the documentation requirements are met. For donations to charitable organizations, cash donations exceeding 300 euros, which are to be claimed for tax purposes, must be evidenced by an officially recognized donation receipt. Up to 300 euros, a simple payment receipt (e.g., a self-prepared receipt plus the organization’s receipt) is usually sufficient. Under the Money Laundering Act, charitable organizations and donors must observe special due diligence from amounts of 10,000 euros upwards and provide proof of origin. Cash donations are generally permitted, but for tax purposes, a complete documentation is required.
Are there legal requirements for lending money to friends or family?
Lending money is generally possible even in a private context. Under German law, a private loan agreement (§§ 488 et seq. BGB) creates a legally binding obligation to repay even without written documentation. However, for evidentiary reasons, it is strongly recommended to have a written contract stating the amount, purpose, repayment terms, and any interest agreed. If interest is agreed upon, it is subject to income tax for the lender. Large or repeatedly made private loans may be classified as a banking activity requiring authorization under the Banking Act (KWG). For greater amounts, anti-money laundering requirements must also be observed.
Are there upper limits for cash payments in everyday life?
In Germany (as of June 2024), there is no uniform, legally stipulated upper limit for cash payments in everyday life, such as when shopping or at a restaurant. However, specific industries, companies, or private individuals can set their own upper limits. Nevertheless, for cash payments from 10,000 euros upwards, identification requirements under the Money Laundering Act apply: the recipient must ascertain and document the payer’s identity. For certain areas, such as real estate purchase agreements—as already explained—a general prohibition on cash payment applies. In other EU countries, there are individual cash payment limits that must be observed for payments abroad.
Is it allowed to collect and store large amounts of cash?
Private individuals are generally allowed to possess and store any amount of cash at home; there is no obligation to report the possession of cash. However, when depositing large sums into bank accounts, the legislator requires identification and proof of origin to prevent money laundering (§ 10 GwG). From deposited amounts of 10,000 euros upwards, banks must ask customers about the origin of the money and request corresponding documents (e.g., sales contracts, inheritance certificates). From a security perspective, it should be noted that household insurance usually covers only small sums in the case of theft or loss if cash was not stored in a certified safe.
What are my obligations when exchanging large amounts of cash?
Anyone exchanging large amounts of cash—especially foreign currencies—is subject to anti-money laundering due diligence. Currency exchange offices and banks must ascertain and document the customer’s identity from amounts of 2,500 euros upwards. Starting at 10,000 euros, additional disclosure of the origin of the funds is required. Banks must report suspicious transactions to the Financial Intelligence Unit (FIU). When exchanging larger amounts abroad, reporting obligations may also apply, particularly when exceeding threshold values at national borders under EU customs law.
