Sweden may be about to take its global cash shortage to the next level, as the pandemic threatens to push its banknotes and coins to the brink of extinction.
Stefan Ingves, the governor of the Riksbank, recently commented that some young Swedes “no longer have a clue” of what real money looks like. It’s a future that has Ingves and others worried, and he says lawmakers may need to intervene before it’s too late.
It was not always obvious that a lack of cash could turn into a risk. Moving to digital transactions comes with many benefits, including the kind of transparency that makes things like money laundering and tax evasion that much more difficult to do. But Sweden appears to have crossed a crucial turning point. If there is no cash to fall back on, what happens if digital networks fail? And the cyber attacks? Such events can cause much more damage than old-fashioned bank robberies.
“If the lights go out, we need to have enough physical cash in this country, far away in the forest, so that we can go back to using physical cash if there is a serious problem,” Ingves said.
Sweden is now trying to tackle the problem of cash shortage amid a pandemic that has made contact with cash a perceived health risk and, as a result, less popular than ever. The preferred payment method these days is completely contactless, for maximum health security.
Klarna AB, a Swedish bank, estimates that 73% of its customers’ card payments are now contactless, up from 63% before the pandemic. “People don’t want to touch coins and bills” or “push buttons,” said Viveka Soderback, manager of consumer information at Klarna. The coronavirus “has accelerated that trend.”
Sweden has less cash in circulation than anywhere else in the world, about 1% of gross domestic product, according to the latest available data. That compares with 8% in the US and more than 10% in the euro area. Of Swedes between the ages of 18 and 34, about three-quarters never or rarely use cash, according to a July survey commissioned by Bankomat.
Ingves says the issue also raises “practical” questions about the role of a central bank. That’s why Sweden’s Riksbank has done more advanced planning than most of its peers to figure out how to stay relevant and how to ensure citizens are not suddenly without access to real money.
“We need a proper definition of legal tender for the digital age,” he said in a recent speech, adding that the government will also need to draft legislation that requires banks and companies to “maintain some form of minimum capacity” to handle cash.
In 2017, the Riksbank began studying the feasibility of issuing a digital currency. Earlier this year, it launched a pilot project to find out what kind of technology is needed to enable the so-called e-krona.
Contactless card payments have soared in the Nordic region, with touch-to-pay transactions increasing 30% in Sweden and 114% in Norway from January to August, according to data compiled by card service provider Nets A / S.
The trend can be seen all over the world. Globally, nearly 60% of Visa transactions outside of the US are done with a tap of the screen, according to the card company. In contrast, contactless transactions, including near-field communication chips used by mobile payment services like Apple Pay, have been little used in the United States, the Federal Reserve Bank of Philadelphia said in a report.
Meanwhile, one of the last bastions of cash, children’s pocket money, is also disappearing in Sweden. Only 16% of Swedish children receive regular allowances in the form of real bills and coins, according to a Sifo survey in June.
Svenska Handelsbanken AB, Sweden’s largest moneylender, has introduced a digital piggy bank to help children manage their pocket money through their mobile phones.
But the next generation of Scandinavia may not know what a real piggy bank is, and consigned the savings container that was once ubiquitous and popularized by storyteller Hans Christian Andersen to history books, alongside rotary telephones and floppy disks.
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