Swiping left and swiping right - living in a cashless society

Oct 24, 2018

Welcome to Say What Wednesday! Today’s question comes from Katherine.

“I heard a story on Hack the other day about Sweden becoming a cashless society – Can you explain this further? Is it a good thing and should we be looking at doing the same thing in Australia?”

Sweden going cashless:

1. This is not a government regulated change – it’s based on the behaviours of the population. Individuals are choosing “cashless” over cash transactions
2. Already considered to be the most cashless society in the world.
3. More Swedes have access to a payment card than to cash, according to data from the country's central bank, Sveriges Riksbank, or simply Riksbanken. And the overwhelming majority of the nation - 85% - have access to online banking.

How does it stack up?

1. Circulation of notes and coins as a percentage of gross domestic product (GDP)
   • Sweden: Just 2% of the total value of transactions in Sweden consist of cash
   • Australia: About 4.2% of GDP
2. Cash transactions in stores
   • Sweden: 20% of payments in shops are made in cash
   • Australia: Was 70% in 2007 but has declined to about 35% now
   • UK: 42% of all retail transactions

The Central Bank is worried:

1. The situation has gotten to a stage where the Central Bank has had to warn the public about the rapid rate at which physical cash is being phased out of Swedes' lives.
2. Reliance on only a handful of third-party payment systems: Riksbank Governor Stefan Ingves, “a completely cashless society would mean a small number of commercial players being responsible for all payments in Sweden, posing a threat to the infrastructure for payments”
   • A cashless Sweden could be unprepared if faced with a crisis, he added.
   • Demand for cash would likely increase in a crisis situation
3. Some people don’t have the ability to go cashless
   • Elderly people and refugees are among those that would need access to physical cash

Sweden could eventually "reach a situation where legal tender is no longer an efficient medium of exchange”

1. This means you would eventually lose the ability to exchange your cash for goods and services, and therefore the currency loses its value.
2. Already some businesses are no longer accepting cash
   • There are other reasons – It’s not actually safe to carry cash around (crime), plus there are issues around counterfeit money. It helps safeguard the stores from robbery.

A cross-party parliamentary committee in Stockholm is currently reviewing central bank legislation to examine whether banks should be forced to provide cash services for their customers.

• Increasingly bank branches are refusing to offer over the counter cash services, due to weakening demand.

Why is this occurring?

• Sweden is a unique economy when it comes to payments. It's home to a popular instant payment app called Swish, set up in 2012 by seven of the largest banks in the country. More than half of Swedish consumers are signed up to the app.

Government and Central banks

The public sector is required to facilitate people’s access to cash, and to help enable people to living within society.

1. It all depends on the likelihood of the country's legislative tightening of the central banks and legislation creating protection for cash
2. An option being tabled by the central bank is a government-backed virtual currency called the e-krona.
   • The project is currently in its second year of a two-year pre-study.
3. The central bank is not keen on the idea of cryptocurrencies.
   • A very poor version of money - not a stable store of value or an efficient means of exchange
4. There is also the idea that government-controlled banks could issue electronic cash
   • May open the floodgates – personally I don’t think it’s a good idea to do this. It has been done before and ends in hyperinflation, for two reasons;
     • Loss of confidence in economy – expropriation of resources – increases political risk (demand)
     • No control on limiting money supply (supply)

What are the effects of not having cash in society?

1. Black market economy gone
   • In Australia – there is a lot of cash held in $100 bills
   • Increased tax revenues – GST, Company and income taxes
2. Absolute control over transaction – the Government can block you from spending money
   • It’s a way to be able to control the monetary flows
   • baring transactions
3. Tracking – Can be tracked in spending

Thanks for the question Katherine! If you have a question or want to know more about any of the topics we discuss, get in touch via our contact page