Björn Ulvaeus, one quarter of the Swedish pop group ABBA, became a fixture in a cashless world after his son was robbed. He believes that ditching the coins and notes will deter criminals and tax evaders while helping businesses and government budgets.
“Sweden would be the perfect country to go cashless,” he told Bloomberg in 2014. “I think that should be the future.”
Almost a decade later, his wish almost came true. A small proportion of Swedes said in a survey that they had used cash in the previous 30 days, while as many as 95% of people aged between 15 and 65 had downloaded the mobile payment app Swish, owned by lenders including Danske Bank A/ S and Swedbank AB. Tapping the phone and waving a card dominate shopping, homeless donations, and church gatherings. Cash transactions fell to 8% of business payments at the end of 2022, from 18% five years earlier, estimates Jonas Hedman of Copenhagen Business School. With such low volumes, it is practically unprofitable to deal with cash.
Sweden is an extreme case: It is a small, technologically advanced economy. But the direction is the same everywhere, accelerated by the pandemic, where QR codes have replaced restaurant menus and online spending has soared – even in Sweden, where restrictions were not as strict. Given that central banks everywhere are considering creating their own digital currencies to offset the risks of running out of cash, there are lessons for us all.
ABBA’s Ulvaeus is right about a few things. Cash-related crimes such as robberies have declined, as has tax evasion. Black market activity has also declined. Just as Sweden pumped more cash into the regulated economy by offering tax breaks, the pandemic-era aid provided by governments appears to have had the same effect. This is perhaps one of the reasons why Europe is seeing a boom in employment despite the slowdown in growth.
Consumers and businesses seem to like the new way of doing things, too — especially the startups that get relief. It’s become easier to spend more, perhaps too much, as Gen Z shoppers fall prey to buy-now-pay-later loans. Still, much to the relief of regulators, the volatile cryptocurrencies have failed to catch on in Sweden – for now.
However, risks emerged. One of them is digital shutdown. Homeless people may accept cards, but pensioners and refugees may be shut out of the cashless world. This goes hand in hand with the “computer says no” problem. When today’s digital payment systems fail, they really fail — as Swish users discovered last year when the entire network crashed. On a recent trip to Brussels, I visited a bar that prided itself on its contactless, cashless system, requiring customers to order drinks via their smartphones. But when a technical malfunction occurred, there was no fallback.
Vulnerability is another issue. We may feel safer with fewer notes in our pockets late at night, but crime has also gone digital and created new types of fraud. Transaction data is increasingly in the hands of large tech conglomerates such as Meta Platforms Inc, which spooked global regulators when it tried to launch its own currency. And in a world where hackers are sponsored by governments and cyberattacks can affect critical infrastructure, payments pose a geopolitical risk. “If Putin invades Gotland[Sweden’s largest island]that will be enough for him to shut down the payment system,” one cash campaigner warned in 2018. Bloomberg TV Bulgaria.
One answer may be to fight to protect cash, not replace it, as author Brett Scott persuasively argues in the book Cloud Money. But it’s not a panacea: Our march toward cashless payments won’t stop suddenly. Private companies want it too much, and consumers can’t do much about it — “convenience is something that’s damn hard to legislate against,” says Copenhagen Business School’s Hedman.
Even if we could stop it, should we? The Bank of England warns that we live in a world of potentially instant bank account drains.
Therefore, one potential answer is a digital currency issued by the central bank. Such a move should not be taken lightly: It could increase traceability and complexity and create new risks if it competes with commercial banks, as colleague Marcus Ashworth argues.
But to say that nothing should be done at all is too extreme. A no-compromise “tight” central bank account could be a good backup option when the next crypto-style crisis of privately issued money, as well as immediate benefit payments, occurs. This goes hand-in-hand with more sustainable infrastructure: Joachim Samuelsson of Swedish tech company Crunchfish AB says it is developing digital money with more cash-like properties, such as offline functionality. According to Deutsche Bank AG strategist Marion Labour, a regulated, cross-border and cross-currency coin could provide faster transactions.
The biggest lesson from Sweden is not to let anything like this happen without debate. Central bankers need the support of politicians and the public amid the biggest inflation challenge in years. In the 1970s, ABBA sang about funny money; no one’s laughing now.
