Imagine a world where every payment is made via smartphone, where credit cards are a backup form of payment, and where cash doesn’t exist. If that sounds appealing to you, consider a move to Sweden, as the nation is on its way to becoming the first cashless country.
Government Support and Public Acceptance
The move towards a cashless system has been in the works for years. In 2009, Sweden decided to eliminate its largest denomination bill, which has led to the amount of notes and coins in circulation in Sweden dropping 40% since that time.
Swedes have changed their spending habits to use the second-largest bill and to move away from cash entirely. By some estimates, only one in five retail transactions in Sweden uses cash, compared to roughly half of transactions in the U.S. Many places that are common for cash use in other parts of the world, like buses, trains, restaurants, and bars, refuse to accept cash and coins in Sweden.
In fact, many bank branches don’t accept cash deposits or withdrawals. Cash payments are accepted in some common areas, but it typically requires a dedicated payment kiosk and a longer wait.
The government is investing in plans for digital currency that are seriously cutting into the use of cash and coin and could be moving the country into an entirely cashless model. The public is largely on its side, citing the dangers that come with cash and the risk it carries for robberies and crimes.
According to many experts, paper currency gets in the way of a smooth-running financial system, as a large portion of the money isn’t in circulation at any given point. Instead, Sweden is aiming for an economy where citizens use credit cards and mobile payment devices almost exclusively.
It isn’t that far fetched, especially when considering the popularity of systems like PayPal, Bitcoin, and Apple Pay, but a government has never been involved before.
However, the program isn’t without its challenges. One of the main challenges is making sure each country’s central bank actually has real money to back up digital payments. The country’s central bank is feeling most of the pressure to adapt to a changing world.
“Although it may appear simple at first glance to issue e-krona, this is something entirely new for a central bank and there is no precedent to follow,“ said Cecilia Skingsley, deputy governor of Sweden’s central bank.
Another issue is payment security, as stores would need to have a certain level of payment system that could accept payment and not be at risk of being hacked. Whether that will be provided by the government or if the right technology even is in existence is still under discussion.
Cash also lends itself well to anonymity—some people in other countries have voiced concern about the government being able to track every purchase a person makes. Some transactions, such as hiring a home laborer or tipping a gardener, are best done through cash with no tax loopholes to jump through, though that seems to be of little concern to Swedes.
Spread to Other Countries
Sweden’s cashless economy could spread to other countries. Denmark and Norway are close behind, and an estimated 93% of transactions in Belgium are currently cashless. Even in sub-Saharan Africa, where the majority of people don’t have bank accounts, mobile payments are becoming increasing popular.
Cashless transactions may be harder to implement in larger or more diverse nations. In the UK for example, 2.2 million people rely almost exclusively on cash for their everyday transactions, meaning taking that away would cause a large portion of the population to seriously update their spending habits.
However, the Bank of England recently started a long-term research project to investigate if the digital pound is feasible. Other countries could follow suit. Although switching to a cashless system has high initial costs, it could eliminate much of the cost and time required to print large amounts of cash and coins.
Sweden has made great progress towards a cashless society in just the past few years. We may see cashless economies spread throughout the world in years to come, so it may be time to leave those cash and coins at home.