Regarding errors in the legal treatment of the concept of money and securities and their consequences

In 1995, during Russia’s first banking crisis, the largest of the ruined banks was the Moscow interregional commercial bank (MMKB) — formerly Promstroibank of the Moscow region. Despite the considerable sum of its assets, the bank returned very little in the way of funds to the creditors. The bank’s lawyers played a large role in this, taking an extremely interesting stance, which contradicted the economic treatment of the category "money".

 

Relying on the Civil Code of the Russian Federation (CC RF), which had been adopted a year before the crisis, they maintained that money is not a liability, but an entity. And since the money which remained in the assets of the bank was the money of investors — natural persons, then the creditors — legal persons — could not demand from the bank entities that did not belong to them.

 

There was some legal logic in this, and it led to certain results. If the clients of the bank — legal persons — could claim from a legal point of view that their monetary relations with the bank were subject to liability laws, and not laws of estate, then they would have succeeded in recovering much more from the ruined bank.

 

The described legal risk of keeping and using money through a bank system is becoming extremely high, which leads, throughout the Russian economy, to a reduction in the amount of non-cash monetary circulation in the country, and, consequently, to a fall in gross domestic product (GDP).

 

Thus it is vitally important to take away this legal risk, not only for the benefit of the banking sector, but also in order for Russia’s economy as a whole to develop normally.

 

Having begun to take shape, the practice of market relations has nevertheless defined non-cash money as a liability of a bank, for current accounts and for thrift accounts, respectively.

 

But in relation to paper money, the country’s leading legal experts did not waver. Paper money is a physically tangible entity, as they said and wrote in Article 128 of the Civil Code of the Russian Federation (Art. 128, CC RF): "Entities, including money and securities, are objects of civil rights…"