What can we learn from Sweden, the ultimate cashless society?

Harry de Quetteville
Demand for notes and coins in Sweden is so limp that cash is literally disappearing: the amount in circulation has fallen 27.5pc in the last four years

The collapse of cash in Britain has been dramatic. There were 11.5bn fewer cash transactions in 2018 than in 2008 – a decline of 51pc. It’s a pace of change that has surprised everyone, even industry insiders. “The rise of the debit card and the decline of cash is the phenomenon of the last decade,” says Adrian Buckle, head of research for UK Finance, the banking sector trade body.

But Britain, while on the podium, is not the world champion in cashless. That title goes to Sweden, where demand for notes and coins is so limp that cash is literally disappearing: the amount in circulation has fallen from 80bn kronor (£6.6bn) to Skr58bn (£4.8bn) in the last four years, a reduction of 27.5pc. The same period has seen ATM withdrawals fall by more than half.

In Japan, among the most dedicated cash-loving rich countries in the world, 79pc of people use cash every day. In America, 70pc of people use cash every week. In Sweden only 60pc can remember using it - at all - in the last month.

It has become a self-fulfilling prophecy. As everything from Ikea stores to public transport to the Abba museum have gone cashless, so Swedes have ditched notes and coins. In a country where public trust in government and internet coverage is high, there is no significant kick-back. Polls show that only a quarter of people miss cash, while almost half actively welcome its parting.

But even here there is a recognition that there is a price to pay for this transition. A price which can be seen most starkly in a public information leaflet distributed last year to all Swedish homes called “Om krisen eller kriget kommer”: “If crisis or war comes”.

The leaflet outlines the country’s project of “Total defence” against invaders and terrorists. The tone is from the Cold War, but the threats are from the digital age. “What would you do if your life was turned upside down?” it asks Sweden’s 10m people. “[If] payment cards and cash machines do not work?” “[If] Mobile networks and the internet do not work?

“Even today, attacks are taking place against our IT systems,” it notes, listing a kit of emergency supplies all Swedes should keep. Alongside a wind-up radio, they are told to salt away “cash in small denominations”.

Short of the apocalypse, however, Swedes will be using Swish – an app which allows instant cash transfers using just a mobile phone number. Or another homegrown payments technology, iZettle. And a few thousand have even gone so far as to implant RFID chips under their skin, so that they can pay with nothing more than a swipe of the palm.

The result is that Sweden’s ability to use cash at all is wobbling. Even banks have gone cash free. More than half the country’s 1,600 branches now don’t accept deposits or allow withdrawals. So significant is the situation that a national commission was established to investigate. Mats Dillén, who headed it, told researchers from Britain’s own Access to Cash Review that cashless was causing “a negative spiral which can threaten the cash infrastructure”.

“In Sweden, we were repeatedly advised to plan now – because once their infrastructure had gone, putting it back was close to impossible,” wrote Natalie Ceeney, chair of the review.

Sweden’s National Pensioners Organisation is one of the few prominent critic of the rush to cashless. But ironically its campaign has been hampered by the fact that local fundraisers receive donations in cash – which they struggle to deposit in banks.

At the Riksbank however, and at central banks all over the world, there is another concern. For them, cash is the only interaction between consumers and so-called “sovereign money” – issued by the state. By contrast the changes to our balances when we use cards is reflected in so-called “bankmoney” – intangible accounting items of an institution, rather than the tangible expression of constitutional power embodied in cash.

Sweden’s profound turn away from cash represents a challenge to that unique expression of the cohesive power of the state. Crypto-currencies like Bitcoin – decentralised digital tokens whose accounts are effectively run not through a central bank but a “distributed ledger” – pose a similar threat.

The answer, the Riksbank thinks, is a “Central Bank Digital Currency (CBDC)”, otherwise known as an “e-krona”. Some 40 countries are reported to be considering issuing digital state money. Last week, two US Congressmen wrote to the US Federal Reserve asking that America create an e-dollar.

“Relying on the private sector to develop digital currencies carries its own risks, including loss of control of monetary policy,” they insisted. The global supremacy of the dollar, they added, was at risk from state competitors such as China or private insurgents such as Facebook and its mooted global currency, Libra.

Back in Britain, the Bank of England says it is “not planning to create a central bank-issued digital currency”. Yet in a speech in America in August, Governor Mark Carney suggested that a network of CBDCs could unite to create a “Synthetic Hegemonic Currency” (SHC) – one digital currency to rule them all. “The concept is intriguing,” he said, noting that social media’s notorious “move fast and break things” approach was supremely ill-adapted to the financial system.

The development of such “synthetic currencies” are just the latest evolution of a system that emerged to facilitate transactions – but soon became an expression of power.

Barter, frequently attributed to the Mesopotamians about 8,000 years ago, saw everything swapped from shells and salt. Some 5,000 years later, bronze, silver and gold coins were invented. Almost as quickly, forgery began, with precious metals debased. Then as now, the Riksbank likes to say, the value of money “rests on the confidence of the general public”.

“Money is about trust,” says Dr Tatiana Cutts, at the LSE’s department of law. Naturally, the strongest, most stable institutions attract the most trust – one reason why US dollars are used by many millions of people every day, often in developing or unstable countries, even though they are not the state currency.

In this way, money has become linked to identity. “The best system of money purely for economic terms is one that is frictionless,” says Cutts. “Every single country would be signed up to the same currency. But we don’t do that because cash doesn’t just express an economic idea. It’s about state control and the way we identify with our state’s system.”

The link between our own identities as citizens of a state and state currency is powerful, she says, but not unbreakable. “The question of whether something will rival a state currency is a question of whether anything comes to trump our identity as citizens as we understand it now - which is about affiliation to territory. But it’s possible that might change, that we might in future see ourselves as citizens of Google or Facebook.”

Indeed, there are those who believe that our identities, the very data underlying who we are, has become a currency in itself, to trade and spend. That the rise of digital, cashless transactions has unleashed a world where, in the words of Michael Rolph, of Yo-Yo Wallet, “data and currency are fused”.

 

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