Concerns Over the Stability of Cashless Economies Voiced by the World's Oldest Central Bank

Sweden's Riksbank Raises Alarm Over Cashless Society

While the narrative around cash has been largely focused on its imminent demise and the rise of digital-only payment systems, the 2024 payment report by Sweden's Riksbank presents a potential warning. In October of the previous year, we discussed how the transition from cash to digital payment systems might not be as smooth as anticipated. A key point of concern was the growing apprehension among Swedish central bankers and politicians over the potential negative impacts of eliminating cash from the economy.

Sweden's Journey to a Cashless Economy

By the end of 2020, Sweden had one of the lowest amounts of cash in circulation worldwide, approximately 1% of its gross domestic product. This is a stark contrast to the 8% in the U.S. and over 10% in the euro area. Sweden is essentially a cashless society, with all vendors accepting mobile payments or card payments. However, the country is now realizing the potential risks associated with a predominantly digital payment system, particularly in the current climate of geopolitical tensions.

The Risks of a Fully Cashless Society

Concerns have been raised about the vulnerability of a fully digital payment system. In 2021, the Riksbank implemented a directive requiring the six largest credit institutions in the country to continue providing basic cash services to their customers. Despite this, using cash is becoming increasingly difficult as more retail businesses no longer accept notes and coins.

Rekindling the Benefits of Cash

Earlier this week, Heise Online, a German online news service, published a detailed report about the Riksbank's newfound appreciation for the benefits of cash. The report also delves into the Riksbank's concerns about the potential instability of a fully cashless payment system, as highlighted in its 2024 Payments Report.

Sweden's Cashless Journey

Sweden is one of the most cashless economies globally. The shift away from cash was largely due to technological and generational changes, with most Swedes preferring the speed and convenience of digital payments. However, the legal tender laws in Sweden also enabled the Riksbank to withdraw many large denomination notes from circulation, further accelerating the transition to digital payments.

Reversing the Damage

After contributing to the removal of cash from Sweden's economy, the Riksbank is now attempting to reverse some of the damage. It is improving the cash supply by establishing new offices where businesses can deposit and collect cash. This measure is intended to ensure that everyone can pay and calls for stronger legal protection for cash. Banks should be required to accept cash deposits, including coins, from individuals.

Global Trends Towards Cashless Economies

Other countries, including Brazil and Australia, are also moving towards becoming cashless societies. However, these moves have been met with resistance from citizens who still rely on cash for their daily transactions. In Australia, for instance, the government's refusal to legally protect the use of cash in retail settings has sparked backlash from many Australians.

Conclusion

While the move towards a cashless society seems inevitable, it's important to consider the potential risks and challenges associated with such a transition. The concerns raised by Sweden's Riksbank highlight the need for a balanced approach that takes into account the needs and preferences of all citizens. What are your thoughts on this matter? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.