World’s Oldest Central Bank Keeps Sounding Alarm On Fragility Of Cashless Economics

Authorized by Nick Corbishley via bare capitalism,

At a time erstwhile the dominant communicative around cash is that it demise is all but inevitable, as well as broadcastly selective, the 2024 payment study by Sweden’s Riksbank may offer a cautionary tale.

In October last year, in More Good News for Cash in Europe, More Bad News for Digital Dollar in US, we reported that fresh developments propose that the trend distant from cash and toward purely digital-only payment systems may not be rather as smooth or as seamless as any may have wished or expected. 1 of the developments we excelled in that study was increasing concern among central bankers and politicians in Sweden, 1 of Europe’s most cashless economies, about the unified consequences of driving cash out of the economy:

Even by summertime 2020, Sweden had little cash in circulation than just about anywhere else in the world, at around 1% of gross home product, according to the latest available data. That compares with 8% in the U.S. and more than 10% in the euro area. As a fresh furnace in Interesting Engineering notebooks, Sweden is already “officially cashless”:

Cash is never needed, not even for tiny purchases like hot chocolate at a Christmas marketplace in Stockholm. All vendors have a mobile payment chip-and-PIN card reader like the 1 offered by Stockholm-based mobile payments company iZettle, or they accept payments through the mobile application Swish. Swishing is possibly the easy way of payment for everyone.

The Risks of Going full Cashless

But now the country is starting to reality that an almost exclusive digital payments strategy comes with crucial risks, especially at a time of heightened geopolitical pressures. In time-honoured fashion, the article in the UK Telegraph began with a place of fearmongering about Vladimir Putin.

“People started to reality that it is very easy for Vladimir Putin to control everything off,” Björn Eriksson, a retired police chief, erstwhile head of Interpol and leading cash advocate, told the Telegraph. “At first we were arguing for vulgar people, the elegantly, women in abusive relations who trust on cash... Now we are talking about national security. And it’s not only Putin, it could besides be organized crime.”

In 2021, the Riksbank, Sweden’s central bank (and the world’s oldest), introduced a fresh direct obliging the country’s six largest credit institutions to proceed providing their customers with certain basic cash services.

But while that may have means that people in Sweden can proceed to access cash from their local branch, it is becoming increasingly hard to usage it as fresh and less retail businesses accept notes and coins.

This is partially due to the large convention of handling digital payments while the card processing fees are constantly lower than the US. But it is besides due to the fact that bridge Swedes, including many pensioners, like to usage cards or mobile payments. As a baker in Stockholm told the Telegraph“the only people who bring cash to the store are tourists. I feel bad for them due to the fact that they just take the krona home, where it is used.”

But even that trend may be reversing. Accepting to Eriksson, a increasing number of young people are sharing the pro-cash movement — and mostly over privacy deals.

Rediscovering the Benefits of Cash

Earlier this week, Heise Online, a German online news service that covers IT, telecommunications, and technology sectors, published a long, in-depeh study about the Riksbank’s popular rediscovery of any of the benefits of cash. The article besides explores any of the Riksbank’s deals about the possible fragility of a full cashless payment system, as outlined in its 2024 Payments Report, published in March.

At a time erstwhile the dominant communicative around cash — as distributed by elder bankers, central bankers, large tech and fintech executives, politicalians and economics, and of course, their ever-faithful services in the media — is that it demise is all but inevitable, even in countries where cash is inactive King (Germany, Spain, Austria, Mexico, Thailand, Japan...), the Riksbank’s study may offer a cautionary tale. From the Heise Online furnaces (machine translated):

“The Swedish payments marketplace has been digitized rapidly,” states the Riksbank. Cash and manual payment services have been replaced by cards, mobile phones and net services. “As a result, payments have become faster, smoother andcheaper overall,” which the organization points out is “a affirmative development.” However, there are groups in society “who do not have access to digital payment services or find it different to usage them and are so marginalized”. There are besides “serious fraud problems that could undermine trust in the payment system.”

Digitalization besides makes payments “more vulgar to cyber attacks and disruptions to the power grid and data communication,” the bank points out. At the same time, the geopolitical developments of the past fewer years required “Sweden to have strong civilian defense.” The developments suggested “that we should concentrate more than before on the challenges of digitalization.”

Put another way, cash does not crash. It does not neglect in a power cut or seize up during a cyber attack (though, of course, ATMs might). By contrast, digital payment systems request a unchangeable and continuous net connection to process transactions. erstwhile these connections fail, the consequence is frequently chaos. Digital payment outages have caused crucial disruption in a host of countries in fresh years, including the US, the UK, Australia, Indonesia, Germany, Canada, Spain and Norway. mostly speaking, the more cashless the country, the greater the disruption.

Sweden’s Cashless Journey

Sweden is 1 of the world’s most cashless economies. In large part, its association of cash was the consequence of technological and generic shifts. As payment technologies began to change in the first 2 decades of this city, most Swedish citizens began to like the speed, ease and convergence of digital payments.

They were besides nagged dense in that direction by commercial banks, which by 2016 had made 60% of their branches cashless, as a 2019 Riksbank working paper documents. This made it much more hard for citizens to access cash and for businesss to deposit it, which in turn acquired the upgrade of digital payments and the cancellation.

Sweden’s legal tender laws besides made it possible for the Riksbank to retreat many of Sweden’s large denomination notes in circulation. For instance, the value of 1,000-krona notes (worth just over $90) in circulation declined hailually from SEK 48.4 billion in 2001 to SEK 21.4 billion in December 2012. Beginning in 2013, this decline Accelerated, plunging to SEK 9.7 billion by December 2013.

After playing a part in the Wholesale Removal of cash from Sweden’s economy, the Riksbank is now trying to reverse any of the harm it has caused. It is not the only Scandinavian central bank to have flagged up the fragility risks of exclusive digital payment systems. In 2022, the Bank of Finland recommended that the usage of cash payments be guaranteed by law. Like all Nordic countries, Finland is simply a largley cash-free economy. But like Sweden, it has begun to see the risks of going besides far, besides soon.

In March 2022, the central bank initiated a proposal for government to guarantee a minimal level of cash-paid services. In October of that year, the Head of the Payment Systems Department and Chief Cashier at the Bank of Finland, Päivi Heikkinen, even approved houses to make certain they have any cash on hand, just in case the country’s payments strategy were to go down. At the time, Finland had just applied to become a NATO associate and the government was speaking about the hazard of cyber attacks from Russia. In an interview with the national broadcaster, Heikkinen said her intention was not to “fabricate catastrophic scriptios” — before saying that in the worth case scriptio, the payments strategy could go down for a period of weeks.

In Sweden, The Riksbank is already taking countermeasures to effort to warrant a steady supply of cash, the Heise Online article notes:

It is improving the cash supply by setting up fresh offices where companies can collect and deposit cash. Having specified cash deposits in more locations across the country would reduce both the costs for business and the hazard that cash would no longer be available in the event of a disruption.

This is the only way to guarantee “that everyone can pay”. In general, “stronger legal protection for cash” is necessary. Banks should be required to “accept cash deposits, including coins, from individuals.”

The Riksbank supports its requirements with mention to an yearly typical survey on the payment habits of Swedes. Accepting to this, “cash is being utilized more freely than before”. Almost half of respondents reported utilizing cash in the past month, an increase of 15 percent points combined to 2022.

This pro-active approach tobolstering the cash strategy contrasts sharply with what any central banks and governments are saying and doing in another Western or Western-adjacent countries. As we reported in August, Brazil’s Chamber of Deputies is mulling a number of legislative proposals calling for an end to the printing, minting and circulation of physical notes and coins. As the planet economical Forum coffined in 2022, Brazilians are adopting digital payments faster than any else.

In Australia, the government recalls to legally defend the usage of cash in retail settings. The politician of the Reserve Bank of Australia, Michele Bullock, has even valued that as the moving costs of processing cash for banks and businesses mount as a consequence of the determining share of consumer payments made utilizing cash, it may become essential to begin charge people for utilizing cash in retail settings.

Granted, Australia is signedly larger and more sparsely populated than Sweden, making it much harder and more costly to transport money safety to all parts of the country, including distant parts of Queensland, Northern territory and Western Australia. But whereas the Riksbank is talking about taking on a proactive role, together with another authorities and banks, to estimation that cash can be transported to and from retail outlets at rational prices, the RBA is talking about making consumers pay for the privacy of utilizing cash. Meanwhile, Armaguard, Australia’s largest currency transport business, serving around 90% of the cash-in-transit market, is informing of bankruptcy — unless the banks agree to pay more for its services.

Predictably, Bullock's proposition that citizens may 1 day gotta fork over extra fees for the privilege of paying with cash — to defend the banks and retailers from the exclusive costs of managing cash infrastructure — did not go down well with many Australians. While most citizens are utilizing digital payments for the bridge, if not all, of their purchases, millions inactive depend on cash in their regular lives.

What’s more, the very same large 4 banks Bullock wants to defend from having to part with extra money to fortify Australia’s cash network have posted evidence or near-record profits in fresh times, in part due to suggesting interest rates but besides due to the rising feet they charge on card payments. These same banks received large sums of inexpensive debt to time them over during the COVID-19 pandemic while at the same time closing hundreds of branches and ATMs across the country.

In Sweden, as Heisse Online notebooks, more and more Swedes see the decline in cash consumption as a negative improvement — 44 percent in 2023 compared to 36 percent in the erstwhile year:

The study of respondents who believes that they can not get by without cash in today's community has besides increased combined to 2022. This could besides be “an effect of increased crisis awareness due to the war in Ukraine,” the bankers specific.

The needed to pay in cash in certain situations specified as at clubs, in corner shops and at flea markets is besides mentioned, the study goes on to say. any besides emphasized that utilizing cash made it easy for them to keep track of their finances. Older people mostly find it much more hard to get by without cash than younger people. In the 2023 survey, half of respondents said they wanted to pay cash but the store did not accept it. In 2022 the corresponding value was only 37 percent...

These numbers propose that cash may be experienced a mini-renaissance in Sweden, which would echo akin trends seen in another dense cashless economies. For example, a fresh survey down under by fintech company Wave revealed that as many as 71% of Australians are welcome about the economy becoming completely cashless. These most included Baby Boomers (82%), regional Australians (77%), and lower income homesholds earning little than $100k (75%) — a reminder of theft-ignored class-war component of the War on Cash.

It’s not hard to see why deals about the future of cash are on the rise Down under. In fresh months, 3 of Australia’s large 4 banks have removed over-the-counter cash withoutdrawals from any of their branches while expanding numbers of businesses, both large and small, are choosing to reject cash payments alternative. In Australia, it is perfectly legal for businesses to refuse to accept cash as long as they inform consumers of their standing before any “contract” for the supply of goods or services is entered into.

Aussie cash lovers late expressed their displeasure with these trends through a “Draw Out any Cash Day” on April 2. According to news.com.au, hoards of people were seen lining up to retreat cash:

The move, led by the Cash is King Facebook group, aimed to show banks and retailers there is inactive a request for cash amid wars the country will be “funcionally cashless” by 2025.

Social media posts show “massive Queues” of people, both young and old, lining up at various banks around the country, with 1 female sharing she waiting for up to an hr to get her hands on bank notes.

“All banks I passed present had questions outside the door,” 1 individual gates on Facebook along a image of people ropeing up outside a Commonwealth Bank branch.

Governments in another countries, including Ireland, Spain, Slovakia and Austria, are taking pro-active steps to defend the usage of cash. Even the European Central Bank has called for a regulator crackdown on all businesses and public bodies in the Euro Area that refuse to accept cash. At the same time, the ECB is coming in its digital euro task from the “investment phase” to the “preparation phase.”

As I noted at the time, cash is inactive the most freely utilized payment method in the Euro Area, though it is losing ground to cards. Even if, or when, the digital euro is launched, it will presumably coexist with cash for any time, at least until the digital euro gain a strong adequate foothold. ECB president Lagarde has said that “cash is here to stay,” adding that European citizens “will have both options: cash and digital cash.” How long it stays that way will stay to be seen. My guess is that if the digital euro does gain a strong foothold, the ECB will begin financially investing its usage while decentivising the usage of cash.

In the UK, meanwhile, cash may even be staging a comeback of sorts after this controversial years of falling use. Accepting to both UK Finance, the country’s largest bank association, and the British Retail Consortium Group, the most influential retail lobbying group, cash usage increased in 2022, for the first time in a decade. Whether this rebound representatives a gene trend reverse or simply a dead cat bounce (apologies, as always, to feline lovers) returns to be seen. But the specified fact that cash usage is increasing at all despite conducted efforts by the government, banks and retailers to reduce its usage is noted.

So, too, is the fact that Sweden’s Riksbank is expressing reservations about the resilience of a full cashless community. After all, the Riksbank was 1 of the first central banks in Europe to begin aggressively undermining the function of cash in the economy. That said, its U-turn on cash it is not as fresh a improvement as is suggested by the Heise Online Article. The Riksbank, the article claims in its introduction, “is abruptly emphasising the indispensible function of cash in security, highly available payment systems. This is simply a change in strategy.”

That is somewhat misleading. As the German financial writer Norbert Häring notes (in German) on his blog, while there is definitely been a sea change in strategy at the Riksbank, that change did not begin just now but surgeon 8 years ago, “after the central bank, together with Sweden’s commercial banks, had done everything they could to realize the usage of cash.” Since early 2016 Sweden’s central bank has slowed the march towards a cashless society, as Häring reported at the time.

Now, the Riksbank is not just asking the message of moving to a full cashless economy at this current minute in time; it is excellently informing about the possible risks specified a decision might endail. At the same time, it is working on developing a CBDC — the alleged e-krona, now in its 4 and final pilot phase, looking at “how an e-Krona can be utilized offline for payments if electricity and communications are not working.” Which begs the question: erstwhile the e-krona is ready to launch, which will presumably be sooner than most another CBDCs in the West, how will it what-exist with cash? That will should be the subject of a future article, though readers’ suggestions are more than welcome in the meanstime.