Definition and Legal Classification of Substitute Money
Substitute Money (also: Ersatzgeld, surrogate money, or emergency money) refers to means that are used in legal transactions temporarily or permanently as a replacement for the legally recognized means of payment (legal tender). The legal structure of substitute money encompasses a wide range of manifestations, from emergency money in times of crisis to modern electronic means of payment. The treatment of substitute money is complex due to its interactions between private law, public control, and its macroeconomic significance.
Types of Substitute Money
Emergency Money
Emergency money is especially issued during times of economic distress or loss of confidence in the state currency. Historically, it was, for example, issued during the hyperinflation in the Weimar Republic or during the Second World War. Emergency money can be issued by government agencies, companies, or municipalities. Legally, it does not constitute legal tender but rather a surrogate, whose acceptance is based on agreement or practical enforcement.
Substitute Money in the Form of Vouchers, Tokens, and Coupons
Vouchers, gift cards, coupons, company money, or private tokens can serve as substitute money. Their legal treatment depends on their contractual structure and the principles of the law of obligations. As a rule, they certify a claim to goods or services (e.g., meal vouchers), while they do not necessarily entitle the holder to a refund in legal currency.
Electronic Means of Payment and Digital Payment Services
With digitalization, digital means of payment (e.g., e-money, prepaid cards, digital credit) have become increasingly relevant, some of which serve as substitute money. E-money in the European Union is subject to the E-Money Directive and the Payment Services Supervision Act (ZAG) and must be legally distinguished from legal tender, even if acceptance is growing closer. Cryptocurrencies such as Bitcoin are not, in the strict sense, considered substitute money under the law, as they are neither legal tender nor issued by a central bank.
Legal Framework of Substitute Money
Legal Tender vs. Substitute Money
In Germany and the European Union, legal tender is defined in Art. 128 TFEU, § 14 Bundesbank Act (BBankG), as well as in Art. 10 Regulation (EC) No. 974/98. Anything that is not legal tender is considered substitute money. Legally, substitute money, in contrast to legal tender, is generally permissible by agreement, provided there are no statutory prohibitions.
Significance in the Law of Obligations
In the law of obligations, substitute money is the subject of an exchange relationship that is agreed upon either expressly or tacitly. Thus, a payment in substitute money (e.g., voucher, company coupon) may be capable of fulfilment if nothing else is contractually agreed (§§ 362 ff. BGB). In such cases, the risk of acceptance is regularly borne by the creditor of the substitute money.
Public Control and Regulatory Law
The issuance of substitute money by private or public bodies can be subject to regulatory or supervisory restrictions. In particular, the Banking Act (KWG) and the Payment Services Supervision Act (ZAG) differentiate between payment service providers and e-money issuers. Issuing substitute money without official approval can be subject to criminal law, especially in cases where imitation or risk of confusion with legal tender occurs.
Substitute Money in the Context of Payment Services
E-Money and Payment Services
E-money, according to § 1 para. 2 sentence 3 ZAG, is any monetary value that is stored electronically, assigned to a specific person, and accepted as a means of payment. The issuance and circulation are subject to the supervisory control of the Federal Financial Supervisory Authority (BaFin). E-money issuers must have the necessary authorization. Ownership and transfer are secured by specific legal relationships.
Cryptocurrencies
In German legislation, cryptocurrencies are classified as so-called units of account and thus as financial instruments within the meaning of the KWG. However, they are recognized neither as legal tender nor as e-money, which means that their acceptance as substitute money is subject to free private autonomy. There is no obligation to accept them, so in contracts, the agreement on the method of payment is always decisive.
Substitute Money and the Principle of Freedom of Contract
Agreement Regarding Substitute Money
According to the provisions of the German Civil Code, contracting parties can generally agree to fulfil an obligation with substitute money (§§ 311 ff. BGB). However, such an agreement is void under § 134 BGB if it violates a statutory prohibition, for example, in the event of a breach of the KWG regarding unauthorized issuance. An obligation to accept exists in principle only for legal tender; for substitute money, there is no obligation on the contractual partner to accept it unless he has expressly agreed to the method of payment.
Risk Aspects from a Consumer Protection Perspective
Substitute money systems, especially vouchers or prepaid cards, are generally susceptible to insolvency risk, as the redemption risk lies with the holder. Consumer rights (e.g., regarding voucher validity, limitation periods, and refund) are primarily governed by the law of obligations and consumer protection law, such as §§ 305 ff. BGB (General Terms and Conditions).
Substitute Money in an International Context
European Legal Requirements
The European Union regulates the issuance and acceptance of certain types of substitute money based on various directives and regulations. These include, in particular, the E-Money Directive (2009/110/EC) and the Payment Services Directive (EU) 2015/2366 (PSD2). These requirements harmonize regulations and establish minimum standards for issuers and users.
Comparable Institutions in International Law
In Anglo-American legal systems, various forms of substitute money, such as checks, money orders, and private “script,” are treated differently. The legally binding effect and the duty of acceptance vary by country, while the basic ideas regarding their function as a substitute for means of payment are comparable.
Criminal Law Aspects of Substitute Money
Counterfeit Money and Criminally Relevant Money Surrogates
The production, distribution, or use of substitute money that closely resembles legal tender or could be mistaken for it is punishable under § 146 StGB (forgery of money). Violations of supervisory requirements are also relevant if banking or payment business is conducted without authorization (§ 54 KWG).
Administrative Offenses and Prohibitions
In addition to criminal sanctions, significant supervisory measures up to and including prohibition and confiscation may be imposed if substitute money systems are issued or operated in disregard of existing legal requirements.
Distinction from Related Terms
Means of Payment, Payment Substitutes, and Credit Money
Substitute money must be strictly distinguished from legal tender, as well as from so-called payment substitutes, which, under certain circumstances, include credit cards or money orders. However, these are not regarded as original substitute money, as they often only function within the framework of existing payment obligations. By contrast, credit money refers to means that are based on credit extension and only serve secondarily as a payment surrogate.
Summary and Importance of Substitute Money in Legal Transactions
Substitute money represents a versatile and legally multifaceted instrument of payment transactions. Its legal treatment depends decisively on its function, acceptance, and the existing legal framework. Increasing digitalization, the emergence of new payment forms, and international developments intensify the need for differentiated legal evaluations. Contracting parties face both opportunities and risks in dealing with substitute money, which always requires careful legal analysis.
Frequently Asked Questions
What legal requirements must be met to have a claim for substitute money?
Under German law, a claim for substitute money is generally tied to certain requirements. Firstly, there must be a statutory or contractual claim for damages, where the damage typically does not consist of a monetary debt but the restoration of a previous condition (natural restitution, § 249 para. 1 BGB). If natural restitution is unsuccessful, impossible, unreasonable, or entails disproportionate costs, substitute money replaces it according to § 251 para. 1 BGB. This applies especially to destroyed or lost items or irreversible infringements of legal rights. Another requirement is that the claimant can prove the damage and the impossibility of natural restitution. Where relevant, contributory negligence (§ 254 BGB) or third-party claims must also be considered. Case law also requires precise determination and quantification of the damage to be compensated as well as consideration of any benefits that may have arisen to the injured party as a result of the damaging event (so-called benefit deduction).
How is the amount of substitute money determined in legal terms?
The amount of substitute money is determined according to the principle of full compensation: the injured party is to be compensated in such a way that their financial position reflects what it would have been if the damaging event had not occurred. Key is the point in time of the final hearing (§ 287 ZPO, or the time of the loss in some cases, depending on the type of damage). The objective depreciation suffered by the injured party is decisive, using market prices, fair values, or replacement values. In the case of non-material damages (e.g., compensation for pain and suffering, § 253 BGB), the court decides on the appropriate amount based on all circumstances. Deductions must be made for any use the injured party may have derived from the damaged item. Benefits and third-party payments (e.g., insurance payouts) must also be included in the calculation.
In which cases does the law specifically provide for substitute money?
Substitute money is expressly provided for by law in various situations. In addition to general tort law (§§ 249 ff. BGB), there are numerous special cases: in particular, property law (§ 251 BGB), tenancy law (§§ 536a, 546a BGB), and contract law (§ 634 No. 4 BGB) contain explicit provisions for substitute money, such as in cases where rectification or return of the rented object is impossible. There are also regulations in public law (e.g., Art. 14 para. 3 GG – compensation for expropriation) that require substitute money. Comparable provisions can be found internationally in Art. 36 of the Vienna Sales Convention (CISG).
What role does the impossibility of natural restitution play in claims for substitute money?
The impossibility of natural restitution is the central basis for the obligation to pay substitute money. If restoring the original condition is objectively or subjectively impossible or unreasonable for the injurer or the injured party (e.g., because of disproportionately high costs, § 251 para. 2 BGB), the injuring party must provide compensation in value instead. Impossibility also occurs when the item is permanently damaged, lost, or its condition has changed so that restoration is excluded. The law also protects the debtor from existential endangerment; if restoration would entail an economically unreasonable effort for the debtor, only substitute money remains as a surrogate for the original performance.
What is the relevance of benefit deduction in connection with substitute money?
Benefit deduction has significant legal importance in connection with substitute money. It prevents overcompensation of the injured party by deducting any benefits that are causally derived from the damaging event from the compensation owed. Examples include an increase in value due to modernization as part of damage repair, deductions ‘new for old,’ or reimbursement of insurance payments already received. According to established case law, these benefits must be offset, provided they are adequately linked to the damaging event and not obtained for entirely different reasons. In practice, complex calculations are often required to determine the legally correct amount of substitute money to be paid.
Are there contractual structuring options in relation to substitute money?
Contractually, the parties may deviate from the statutory model of compensation within the framework of private autonomy. For example, they may agree that in cases of contractual disruptions or impossibility of performance, a fixed sum or a sum determined according to certain criteria shall be paid instead of natural restitution (e.g., contractual penalty, lump-sum compensation). Such clauses are subject to the fairness test under the law of general terms and conditions (§§ 305 ff. BGB) and must not unreasonably deviate from the basic principles of compensation law to the detriment of the contractual partner (§ 307 para. 2 BGB). A complete exclusion of substitute money is usually incompatible with the principle of good faith (§ 242 BGB); there are limits, particularly where statutory minimum standards or mandatory protective rules apply.
Do claims to substitute money become time-barred and what are the limitation periods?
Claims to substitute money are also subject to statutory limitation. Under § 195 BGB, the regular limitation period for contractual and statutory claims is generally three years from the end of the year in which the injured party became aware of the damage and the party causing it (§ 199 para. 1 BGB). In some cases, for example in property law (§ 197 BGB) or for certain product liability claims, there are different, often longer, periods. Limitation may also be suspended by negotiations, acknowledgment, or the initiation of legal proceedings (§§ 203 ff. BGB). After the limitation period has expired, the debtor may refuse to fulfil the claim, even if the claim itself is valid.
