Even the World’s Most Cashless Nation Doesn’t Want to Go Fully Cashless

It’s too risky and systematically excludes the most vulnerable people.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

There are small but growing signs that Europe’s “War on Cash” is not going exactly according to plan. First, a number of central bankers began voicing concerns about its potential ramifications. Now, even in Sweden, the first European country to enlist its own citizens as largely willing guinea pigs in an economic experiment — negative interest rates in a cashless society — public support is beginning to waver.

Initially, the plan was so successful that by 2017 the amount of cash in circulation had dropped to the lowest level since 1990 and was more than 40% below its 2007 peak, earning Sweden a reputation as the world’s “most cashless nation.” The declines in 2016 and 2017 were the biggest on record. An annual survey by Insight Intelligence found that in 2017, only 25% of Swedes paid in cash at least once a week, down from 63% just four years before; and 36% never used cash at all, or just pay with it once or twice a year.

But that doesn’t mean everyone is on board. In a recent survey, an overwhelming 68% of the respondents stated that they would not like to live in a fully cashless society. The survey, commissioned by Bankomat AB, an ATM chain company representing an alliance of Swedish banks that admittedly has a vested interest in preserving cash’s role as a means of payment, polled over 2,000 people aged 18-65.

Opinions differed markedly between age groups but in no single demographic was there a majority in favor of abolishing physical currency. Among the 18-29 year old respondents 56% declared that they still want to keep cash while 38% said they would welcome a cashless society. Among the survey’s oldest demographic, the 65-year-olds, 85% wanted to keep cash.

Only one in four Swedish people support a fully cashless nation. The views on cash expressed in the survey varied sharply between inhabitants of small towns and those in large cities. The proportion of cash advocates was lowest in the country’s capital Stockholm, and highest in more rural areas such as Västmanland, Värmland and Kalmar counties.

The survey’s findings were published as the pace at which cash is vanishing in Sweden is even beginning to worry the same authorities that wanted to get rid of it. If physical money disappears too quickly, it could be difficult to maintain the infrastructure for handling cash, one Swedish official recently warned. And that may be enough to spark a crisis.

Most of the country’s bank branches have stopped handling cash altogether and many shops and restaurants now only accept plastic or mobile payments. As a result, many people who struggle to navigate the digital system, or who don’t have credit cards, in particular the elderly, are finding themselves increasingly locked out of the country’s payment system.

This trend underscores one of the oft-ignored benefits of physical cash: its universality. “The easy accessibility to cash, especially for the elderly, the socially vulnerable or minors, allows people to participate in society and, for example, allows children to learn how to handle money,” Yves Mersch, a member of the ECB’s executive board, said in a speech last month. “In particular, when socially vulnerable people use cash, they face none of the barriers involved in applying for a credit card or, despite all their efforts, opening a current account.”

Sweden’s parliament has launched a review on the impact of going cashless too quickly after fears that it dramatically excludes the financial needs of the elderly, children and tourists who rely on cash. A committee of Sweden’s central bank, the Riksbank, hopes to publish a report on the expected outcomes of a cashless Sweden by summer 2018.

The Riksbank is the world’s oldest central bank but it could become the first to issue its currency in electronic format, the e-kronor. “Three hundred and fifty years ago we replaced large copper coins with notes. Notes could now be replaced with electronic notes and coins,” the Riksbank governor, Stefan Ingves, told Sydsvenskan. The Riksbank could in principle release an electronic hundred kronor note, he said, but digital currency would not need to be divided the same way as physical notes:

“We’re thinking about it. But if you’re releasing electronic money it can be divided in a different way than notes. We wouldn’t use an electronic 100 kronor note if we’re buying something for 98 kronor. Nor would we use two kronor in electronic change. It would work just as well with a 98 kronor note.”

But Ingves insisted that Sweden’s national electronic currency would not replace physical cash altogether as that would create a problem in times of crisis, adding: “If the power supply is cut it’s no longer possible to make electronic payments. For reasons based purely in preparedness we need notes and coins that work without electricity.”

In Puerto Rico electronic payment systems were down for weeks following Hurricane Maria last September, essentially turning the island into a cash-only economy. Corporate clients of the New York Federal Reserve made urgent requests for large amounts of dollars in cash to meet payrolls, and ultimately the Fed dispatched a jet loaded with an undisclosed amount of cash to the stricken island.

Perhaps having drawn a lesson from this experience, the governor of Sweden’s Riksbank is now considering forcing all of Sweden’s banks to continue providing cash to customers. “It’s reasonable for banks to be expected to handle money,” he said. “You should be able to deposit money in the form of notes. You should be able to take out money. A ban on cash goes against the public perception of what money is and what banks do.”

It’s yet another sign that perhaps Europe’s war on cash has reached the limits of its practicability — at least for now! Apparently, even the people of the world’s “most cashless nation” don’t want to go fully cashless. And most incredibly, the leader of its central bank appears to agree with them. By Don Quijones.