March 24, 2023. In Sweden, it’s a date to remember. Research by Copenhagen Business School suggests this will be the exact date that the nation becomes a cashless society. And this isn’t pie-in-the-sky thinking, either — the outstanding value of the cash circulating in the country’s economy has already dwindled to just 1% of GDP.
But here’s the thing: Swedes have been relying on notes and coins issued by the central bank for hundreds of years. A historic change is taking place at a head-spinning pace, with increasing numbers of businesses and even some banks refusing to deal with cash.
Data from the country’s central bank indicates that more than 85% of Swedes now have access to online banking services — and more prefer paying with their card or a mobile app than with cash. Even churches are adapting to cashless life, with one place of worship in Stockholm encouraging members of the congregation to make a donation through their smartphone.
Sweden’s cashless utopia
According to official figures, the levels of cash in circulation by 2020 will be up to 50% less than 2012 levels. Four in every five purchases are made using cards, and these days, children are getting their pocket money loaded onto bits of plastic.
But as Sweden throws itself into a cashless world head first, other countries are standing at the ledge, wondering whether they want to dive in too. Consumers in other nations are concerned about the digital footprint they leave behind with every single transaction, not least because of the headline-grabbing data breaches that have compromised the personal details of millions.
Such reservations may not be as big of a concern in Sweden. Bengt Nilervall, of Sweden’s Trade Federation, says the country’s citizens are generally more trusting in banks and the government. And, thanks to strong broadband coverage nationwide, they embrace new technology with open arms. This attitude is a stark contrast to the United States, where many are suspicious of automation and fear it could take jobs away from manual workers.
Ask most consumers whether they would be willing to be microchipped, enabling them to make payments using their hand without the need for a smartphone or debit card, and most would wince. Over in Sweden, more than 4,000 people have given the technology a try — reasoning that if it’s been used in animals for decades without incident, it must be fine for humans.
Is Sweden going cashless too fast?
Microchips, banks and the government in Sweden are all contributing factors to the growing cashless revolution in the country.
Train companies have even given microchipped commuters the opportunity to pay for their tickets using the technology.
But it hasn’t all been plain sailing. The changes have come so rapidly such that the Swedish government has gone from encouraging its citizens to take up cashless payments to weighing up the costs.
The country’s central bank is concerned about the rapid move to a cash-free society because popular digital payment services are owned and operated by commercial banks. There are also fears about what would happen if this infrastructure was hit by power outages or cyber attacks.
And, in a sign that the government is seeking to slam the brakes on its cashless revolution, banks have been urged to ensure that their customers have access to cash withdrawals and deposits if they want it.
Problems of a cashless society
A completely cashless society would jeopardize the position of the state in the economy.
In any case, such a scenario would require a new set of regulations to supervise commercial banks. That is why the central bank in Sweden is proposing “e-krona” — a digital currency that would be issued by the institution.
The biggest advantage of making cash payments is that they remain permissionless and private. Once you have cash in hand, you can buy whatever you want without being monitored by the authorities.
But with digital payments, every transaction introduces third parties that can potentially violate data privacy or leave room for financial censorship.
Even though Sweden’s cashless movement has reduced the rate of bank robberies, a part of the Swedish population feels left out. Various reports indicate that the shift leaves retirees, immigrants and the disabled at a disadvantage since they cannot easily access electronic payment services. Some pensioners say they don’t feel safe when using cards — oftentimes because they aren’t confident with the technology that drives it.
Even young, tech-savvy tourists can end up being shut out of Sweden’s cashless bubble because some of the payment systems in force are only compatible with credit and debit cards that have been issued in the country. Visitors from other European nations where this technology isn’t as commonplace can also end up eyeing it suspiciously, either because of the charges they’ll have to pay to their bank or because of privacy concerns.
Swedes have been eager to abandon cash, but that doesn’t mean they want it gone altogether. A telling survey by Sifo, a polling company, recently revealed that 70% of the population still want to have the option of using notes and coins. As well as appreciating the flexibility, many consumers are clearly worried about what would happen if their phones or cards get lost or stolen.
Can crypto help?
So, not everyone is happy going completely cash-free. However, with cash going scarce — not to mention the growing popularity of mobile payment applications — how can the Swedes smoothly transition to a cashless world without leaving a part of the population behind?
The Swedish central bank’s introduction of e-krona could help retain the position of the state in the payment market. But since it’s a centralized digital currency, it’s unlikely it can solve all the challenges of a cash-free society. A national digital currency introduces a single point of failure that can put an entire country at risk — and there’s a risk of negative interest rates eating away at the funds in a consumer’s bank account.
Cryptocurrencies are being touted as a way of addressing some of the pain points in a cash-free economy. For instance, Bitcoin’s decentralized nature can prevent a central point of failure – combining the best attributes of a cash system with that of a cashless system by offering access to peer-to-peer payments that cannot be censored.
Granted, Bitcoin’s privacy cannot rival the level of privacy that comes with cash, however, it provides a reasonable compromise.
Like every other new technology, Swedes have enthusiastically embraced Bitcoin.
Claire Ingram, a researcher at the Stockholm School of Economics, says “Sweden is among the leaders in the global Bitcoin market.”
However, the Swedish central bank in March 2018, when it announced that “cryptocurrencies are not currency.” This declaration was contrary to a 2013 ruling that said Bitcoin was subject to regulation and should be treated as a currency.
Most recently, the Swedish central bank has claimed that fraudsters are purporting to sell the e-krona.
The Swedish central bank, also known as Riksbank, warned scammers claimed to be selling the e-krona on the institution’s behalf, even though it hasn’t launched yet.
Crypto: The future or a fad?
Cryptocurrencies have been dogged by controversy, but it would be a mistake to write them off — especially in countries that are rapidly going cashless. Once cash disappears, cryptocurrencies could provide a basic level of privacy with every transaction.
Even though the Swedish central bank does not recognize crypto as currency at the moment, analysts believe that Sweden’s transition to a cashless society will increase the demand for decentralized currencies. Just like Sweden, Japan, South Korea and China have also seen a sharp decline in the use of cash. This phenomenon has brought about increased demand for cryptocurrencies like Ethereum and Bitcoin in these Asian economies.
There is no denying that the mass adoption of crypto (even in places like Sweden) will take time. However, all things considered, the digital freedom and privacy offered by cryptocurrencies could make them the best alternative to cash for the privacy-conscious consumer.