Missing link: Card pioneer Sweden rediscovers the importance of cash
The Swedish Riksbank suddenly emphasizes the indispensable role of cash for secure, universally available payment systems. This is a change of strategy.
Cash is king - but for how much longer?
(Bild: AlAnton/Shutterstock.com)
"Sweden abolishes cash" or "The world's first cashless society is emerging". German newspapers made headlines like these a good ten years ago. In 2013, for example, the large Swedish financial institution Swedbank caused a stir because it no longer wanted to hand out or accept cash in its traditional branch on the Östermalmstorg shopping street - in a district where over a quarter of the population is over 60 years old. At that time - as today - this clientele still had the greatest weakness for cash, so the announcement also had a symbolic effect.
More and more Swedish banks were discontinuing the cash service in their branches at this time. They initially relied entirely on credit cards, which make transactions completely traceable. However, experts warn of a "world without cash". Compared to non-cash means of payment, cash is an important corrective in payment transactions, warns the Office of Technology Assessment at the German Bundestag (TAB). No card, let alone virtual "coins" such as Bitcoin, achieve "a similarly high level of inclusion" or comparable protection of privacy. In addition, the influence of big tech companies from the USA and China on the financial system is increasing due to the many digital payment options.
Since around 2020, there have also been signs of a turnaround in cashless pioneer Sweden. Politicians there are considering the need for legal standards for a basic supply of cash. The government in Stockholm not only pushed ahead with its "e-krona" project. At the same time, it introduced a law aimed at restoring and guaranteeing the level of cash supply in 2017.
Course correction by the central bank
The Swedish central bank, the Riksbank, has now also heralded a major turnaround: in its 2024 annual report, it emphasizes the indispensable role of cash for secure and generally available payment systems. The National Bank sees a major security deficit in the functioning of digital payment transactions in the event of unforeseen events such as power outages or in critical situations such as a cyberattack.
The Riksbank is sounding the alarm that the existing digital payment systems cannot guarantee the necessary stability and resilience. Both the public and private sectors must therefore ensure the usability of cash and maintain an appropriate infrastructure for the supply of money. This is because the means of payment are inaccessible and available to all sections of the population at all times.
"The payment system must be stable and resilient to disruptions in normal times," emphasizes the financial institution founded by the Swedish state in 1668. However, it must also be able to function in times of crisis and heightened alert. It should therefore be possible to use several payment methods. It is crucial to be able to make payments even "if there is a disruption in any part of the payment system".
Rapid digitalization also has disadvantages
"The Swedish payment market has been digitized at a rapid pace," states the Riksbank. Cash and manual payment services have been replaced by cards, cell phones and internet services. "This has made payments faster, smoother and cheaper overall," says the bank, pointing to "a positive development". However, there are groups in society "who have no access to digital payment services or find it difficult to use them and are therefore marginalized". There are also "serious fraud problems that could undermine trust in the payment system".
Digitalization also makes payments "more vulnerable to cyberattacks and disruptions to the power grid and data communications", the bank points out. At the same time, the geopolitical developments of recent years require "Sweden to have a strong civil defense". The developments suggest "that we should focus more on the challenges of digitalization".
The Riksbank itself is already taking countermeasures. By setting up new offices where companies can collect and deposit cash, it is improving the supply of cash. If such cash depots were available at more locations throughout the country, both the costs for companies and the risk that cash could hardly be used in the event of a disruption would be reduced.
Central bank calls on politicians
The institute is calling on the government and parliament to introduce new laws on cash management: "As a general rule, retailers who sell essential goods must be obliged to accept cash". This is the only way to ensure "that everyone can pay". In general, "stronger legal protection for cash" is necessary. Banks should be obliged to "accept cash deposits, including coins, from private individuals".
The Riksbank backs up its demands about an annual representative survey on the payment habits of Swedes. According to the survey, "cash is used more frequently than before". Almost half of those surveyed stated that they had used cash in the past month, which corresponds to an increase of 15 percentage points compared to 2022.
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At the same time, other data shows that the use of cash has continued to decline. According to the Riksbank, this is also in line with the trend over several years. In 2023, for example, fewer cash withdrawals were made from ATMs once again and cash in circulation fell by 10 percent overall. One possible explanation for the reported increased use of cash could be that private individuals have tapped into reserves "after Russia launched its large-scale invasion of Ukraine in 2022".
At the same time, more and more people are choosing to use their cell phone with services such as Apple Pay, Google Pay or Samsung Pay instead of a physical payment card. In the 2023 Riksbank survey, 63% stated that they had used a debit card for their last purchase in a store. This is 10 percentage points less than in 2022. At the same time, 9 percent said they had paid with their smartphone, almost twice as many as in 2022. The main reason they gave for this was that this mechanism was "easy and convenient".