Physical currency is being squeezed out in Sweden so quickly that the government is recalculating the societal costs of a cash-free future. Close to half of the nation’s retailers are predicting that they will stop accepting bills before 2025. Digital currency (digital money, electronic money or electronic currency) is a type of currency available…
Physical currency is being squeezed out in Sweden so quickly that the government is recalculating the societal costs of a cash-free future. Close to half of the nation’s retailers are predicting that they will stop accepting bills before 2025.
Background
Digital currency (digital money, electronic money or electronic currency) is a type of currency available in digital form (in contrast to physical currency, such as banknotes and coins). It exhibits properties similar to physical currencies but can allow for instantaneous transactions and borderless transfer-of-ownership. Examples include virtual currencies and cryptocurrencies and central bank issued money accounted for in a computer database (including digital base money).
Like traditional money, these currencies may be used to buy physical goods and services, but may also be restricted to certain communities – ie. for use inside an online game or on social networks.
Sweden was in the process of replacing all of its physical banknotes, and most of its coins by mid-2017. However, the new banknotes and coins of the Swedish krona will probably be circulating at about half the 2007 peak of 12,494 kronor per capita. The Riksbank is planning to begin discussions of an electronic currency issued by the central bank to which “is not to replace cash, but to act as complement to it”.
Analysis
The Swedish financial authorities, who once embraced the trend, are asking banks to keep peddling notes and coins until the government can figure out what going cash-free means for young and old consumers. The central bank, which predicts cash may fade from Sweden, is testing a digital currency – an e-krona – to keep firm control of the money supply.
Lawmakers are exploring the fate of online payments and bank accounts if an electrical grid fails or servers are thwarted by power failures, hackers or even war. “When you are where we are, it would be wrong to sit back with our arms crossed, doing nothing, and then just take note of the fact that cash has disappeared,” said Mr Stefan Ingves, governor of Sweden’s central bank, known as the Riksbank.
A fifth of Swedes, in a country of 10 million people, do not use automated teller machines anymore.
More than 4,000 Swedes have implanted microchips in their hands, allowing them to pay for rail travel and food, or enter keyless offices, with a wave. Restaurants, buses, parking lots and even pay toilets to depend on clicks rather than cash.
Consumer groups say the shift leaves many retirees – a third of all Swedes are 55 or older – as well as some immigrants and people with disabilities at a disadvantage. They cannot easily gain access to electronic means for some goods and transactions, and rely on banks and their customer service.
The progress toward a cashless society could upend the state’s centuries-old role as sovereign guarantor. If cash disappears, commercial banks would wield greater control. Urban consumers worldwide are increasingly paying with apps and plastic. In China and in other Asian countries rife with young smartphone users, mobile payments are routine. In Europe, about one in five people say they rarely carry money. In Belgium, Denmark and Norway, debit and credit card use has hit record highs.
However, Sweden – and particularly its young people – is at the vanguard. Bills and coins represent just 1 per cent of the economy, compared with 10 per cent in Europe and 8 per cent in the United States. About one in 10 consumers paid for something in cash this year, down from 40 per cent in 2010. Most merchants in Sweden still accept notes and coins, but their ranks are thinning.
The central bank has plans to roll out a pilot version next year of a new type of Riksbank money – the digital krona, or e-krona – that could replace physical cash or at least help calm the current cash conundrum. An e-krona would mean that the functions of a currency backed by the state would remain, even in an all-digital world that is fast approaching.
Assessment
Our assessment is that Sweden’s decision to adopt the e-currency will be measured and inclusive, not done in any hurry. We believe that Sweden needs to give its own people, especially the old and technologically agnostic, the time to adjust to a cashless economy. We also feel that Sweden may need more investment in its digital infrastructure to handle the upsurge in virtual currency transactions.
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