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Opinion: Sweden needs change to stop cashless future creating problems in time of crisis

A cashless future could create problems for Sweden in a time of crisis unless the country introduces new payment systems, argues Riksbank Governor Stefan Ingves.

Published: 6 March 2018 06:59 CET

Opinion: Sweden needs change to stop cashless future creating problems in time of crisis

Riksbank governor Stefan Ingves. Photo: Tomas Oneborg/SvD/TT

The ability to pay and get paid for goods and services is a prerequisite for an efficient society. In the same way as we assume water will come out when we turn on the tap, or the light will come on when we flick the switch, we assume payments will be carried out quickly and safely.

Here the Riksbank plays an important role: Not only does the Riksbank issue cash as legal tender, but it is also responsible for the RIX payment system. RIX is Sweden's central payment system for payments among banks, clearing institutions and other agents. The system enables the transactions of one bank's customers to reach the customers of another bank. In both these areas, we are currently in a period of major transition.

But first a brief look back in time. The Riksbank has existed since 1668, and we are celebrating our 350th anniversary this year, starting in Luleå this week. We have issued cash throughout this period of time. When commercial banks emerged in the mid-19th century, they were allowed to issue private banknotes to begin with, but after a long political debate, the roles were refined.

The Riksbank, like many other central banks, was given the monopoly on the issuing of banknotes in 1904 and banks were allocated the responsibility for commercial lending. One reason was that private banks earned large amounts of money from issuing banknotes, which caused a certain amount of irritation. Another was the need for a more stable procedure for managing financial crises. Technological developments later led to the Riksbank issuing cash to the general public and electronic money to major financial institutions, while banks issued electronic money to the general public in the form of bank account deposits. Nowadays an increasing number of people pay by card, but the Riksbank's cash has always been in the background as a standardised, reliable and generally accepted means of payment – available to all.

This order, which has prevailed for over a century, is now being disrupted. Increasingly often, shops and public institutions display “no cash” signs and fewer and fewer banks offer cash services. In 2007, the value of cash in circulation in society was SEK 112 billion. Today, just over SEK 50 billion remains – less than half and a unique development seen in an international perspective.

Under the Sveriges Riksbank Act, Swedish kronor (SEK), in the form of banknotes and coins issued by the Riksbank, are legal tender. The Swedish Riksdag has thereby given cash a unique position as a means of payment. Today, however, retailers and banks can bargain away this unique position. In other words, there is no obligation for retailers to accept cash payments or for banks to concern themselves with cash.

There are several reasons for the decline in cash use: It is relatively complicated to handle and innovative electronic payment methods have become more accessible. There is therefore no reason to believe that banknotes and coins will continue to exist for time eternal. But the fact is that if nothing is done, Sweden is moving towards a situation in which all means of payment to which the general public has access are issued and controlled by commercial agents, at the same time as new so-called electronic currencies of varying types are emerging.

For me, this vision of the future is problematic; the payment system is often said to have an element of public good, which implies that the public sector has an important role – in this case in ensuring that payments can be made safely and efficiently at all times. Other examples of public good are the armed forces, the judicial system and official statistics. Most citizens would feel uncomfortable with handing over these public services to private companies entirely.

There are those who think we have nothing to fear in a world where public means of payment have been replaced completely by private alternatives. They are wrong, in my opinion. In times of crisis, the general public has always sought refuge in risk-free assets, such as cash, that are guaranteed by the state. The idea of commercial agents shouldering the responsibility to satisfy public demand for safe payments at all times is unlikely.

For it to be possible to keep on paying safely and efficiently with Swedish kronor in the future, the payment system needs to be strengthen in two areas:

The Riksbank's range of payment services needs to be modernised: The RIX system already works well, but it needs to be adapted to a future of increasingly rapid payment flows at any time of the day or night. Currently, RIX closes at 1700 hrs but in the near future we need to improve the business hours and the services offered by the Riksbank to banks and other RIX members. With longer business hours, fewer companies will, for example, have to wait until the following day for their payments. When the technology is available, I personally think it reasonable to be able to carry out both large and small payments using Riksbank kronor in real time 24/7, all year round.

Greater legal protection of Swedish kronor issued by the Riksbank: The gap between the Riksbank Act and other legislation, created by rapid technological development, is quickly becoming increasingly problematic. In the near term, this gap can to some extent be plugged by a legal requirement for banks to handle cash. But the issue has wider implications. If the means of payment issued by the Riksbank, Swedish kronor, is not generally accepted, it will be difficult for the Riksbank to perform its task of promoting a safe and efficient payment system.

The issue of legal tender must also be seen against the backdrop of the needs of the country's total defence. It appears self-evident that Sweden's preparedness will be weakened if, in a serious crisis or war, we have not decided in advance how households and companies will pay for fuel, provisions and other necessities.

A parliamentary commission on a new Riksbank Act is currently under way. The Riksbank hopes that the commission will put forward proposals that provide long-term protection for the utility of Swedish kronor issued by the Riksbank. The Riksbank is currently investigating the need of giving the general public access to electronic money in the form of an e-krona. New legislation, strengthening the protection for Swedish kronor, should therefore be technologically neutral to allow for a future totally dominated by electronic money. Otherwise, Sweden risks finding itself in the future in a situation where public governance of the payment system is no longer possible.

In 350 years we have moved from copper coins towards e-money. When technological developments happen quickly, we need to reconsider the fundamental questions of how we define money and ensure that everyone in Sweden has access to safe and efficient payments.

This opinion piece written by Sveriges Riksbank Governor Stefan Ingves was originally published in Swedish by Dagens Nyheter on February 27th. The English translation can also be read here.

Twelve things about Sweden that make me smile

Pontoons or bryggor

Any pond or lake in Sweden bigger than a football pitch will have its own pontoon and whenever I see one, its wooden platform leading my eye out invitingly towards the deeper water, it always brings an involuntary smile to my face.

Swimming in fresh water is one of life’s simple pleasures, and Sweden’s bryggor do celebrate that, but they also demonstrate how Swedes work collectively. Bryggor are almost always well-maintained, but are rarely owned by anyone. Despite this, they’re always free to use. This is not how things work back in my home country of the UK, and it’s a fantastic thing.

The pontoon at Richard Orange’s local lake. Photo: Mia Orange

Overloaded box bikes

I suspect some in Sweden would dismiss lådcyklar or box bikes, as a marker of the country’s smug, left-of-centre middle class. But even after owning my own battered and ancient example for nigh on a decade, seeing one can still make me break out into a smile.

To amuse me, they need to be overloaded. It could be a gaggle of kids of different ages without a seatbelt in sight, a towering piece of furniture, a joyful-looking 20-something, or an enormous dog.

To me, there’s something wonderfully free about box bikes. A life with fewer cars, slightly chaotic, a little bit hippy but still very sensible.

A cargo bike, although not quite overloaded enough to qualify. Photo: Sofia Sabel/imagebank.sweden.se

A well-tooled utility belt

Sweden is a country of engineers and practical people and nothing exemplifies this more than the utility belts, often incorporated into work trousers, worn by the legions of prosperous-looking electricians, carpenters, builders and other workmen or entreprenörer – down where I live in Skåne anyway.

They will have, at the very least, a screwdriver, a hammer, a Mora knife, an extendable ruler, and a carpenter’s pencil, all neatly organised and at the ready.

For me, it’s evidence of the fact that even after years of growing inequality, Sweden’s blue collar workers still enjoy comparatively higher wages than their counterparts in many other countries in Europe, or in the US or Australia. It’s a sign of the dignity and professionalism of the country’s manual workers, and that can only be a good thing.

Sun worshippers

They start to appear at some point in March or April. People standing absolutely still on the pavement or sitting with their back against a wall, eyes closed, just enjoying the sensation of warm sun on their faces.

Even for someone from cloudy, overcast Britain, this is quite strange behaviour, so it must seem wildly foreign to someone from a sunny country like Italy or Spain.

While Sweden’s winters can be cold, grey and depressing, it can seem worth it, almost anyway, when everything and everyone springs back into life in the spring. For me, it’s the sunworshippers, rather than the first spring flowers, that mark the moment this quickening has begun.

Valstugor or “election cabins”

The highlight of every election year for me is visiting the makeshift villages of valstugor, or election cabins, that spring up in town and city squares across the country.

Anyone can just wander up and just start chatting to the political activists about whatever political issue they want to talk about, local, regional or national, and very often the parties’ most senior local politicians will be there.

I’ve witnessed the local head of the far-right Sweden Democrats passionately debating an overexcited crowd of youths with immigrant backgrounds, the head of the local Moderates brutally disown his party’s leader and prime ministerial candidate, and Social Democrats discuss how pessimistic they feel ahead of the coming vote.

For me, it’s a sign of the openness of Swedish society and of how impressively healthy and alive the country’s democracy is at a local level. I always walk away from spending my lunch break touring the cabins beaming.

Valstugor or ‘election cabins’ for the Sweden Democrats and Christian Democrats ahead of Sweden’s 2022 election. Photo: Henrik Montgomery/TT

Raggarbilar

There’s nothing like witnessing a gleaming 1965 Pontiac Bonneville convertible cruising along a Swedish country road to put a smile on your face. I’m not a car enthusiast, but I appreciate passion when I see it, and the sheer incongruity of seeing American cars from the 1950s and 1960s cars on the roads of Sweden always amuses me.

Sweden’s raggare subculture, which is based around an obsession with 1950s American culture and cars, is fascinating. It’s almost entirely based in the countryside, so you only really encounter it when you leave the big cities.

I like to try and get a look at who the person is who has devoted so much of their spare time to renovating and maintaining their beautiful vehicle.

Power Big Meet in Västerås, the world’s largest meet for vintage American cars. Photo: Pontus Lundahl/TT

The mayor on a bike

Since foreign minister Anna Lindh was stabbed to death 2003 while shopping in upmarket NK department store, Sweden’s leading national politicians have tended to travel with security.

But the same is not the case at a regional and local level, and here in Malmö you’ll often see the mayor Katrin Stjernfeldt Jammeh going from place to place completely unsupervised on her bicycle.

As with valstugor, for me it’s a sign of the openness of Swedish democracy.

Toddlers in winter overalls

Det finns inget dåligt väder – bara dåliga kläder. “There’s no such thing as bad weather, only bad clothes.” If you’ve spent a winter in Sweden as a foreigner, you’ve almost certainly heard this Swedish saying over and over again.

It’s true, and particularly true of the gangs of toddlers you’ll see out in the snow in parks and preschool playgrounds across the country, wearing the winter overalls that look almost like little space suits.

You may be spending the dark Swedish winter largely cooped up in well-heated apartments, but it’s heartening to see that they, at least, are not. And that always makes me smile.

Coffee mornings (or afternoons for that matter)

The local village café near where we are building our summer house has a little sign on the wall informing the clientele of its frukostklubben, or “breakfast club”, explaining who were the first locals to attend and which table they sit at.

If you get there for its 8am opening, you’ll soon see the guy who runs the local plumbing firm, an electrician, and perhaps the odd farmer, take their place at the table and begin gabbling on about local matters, discussing politics, all in the distinctive mellow rural accent of southeastern Skåne.

These sorts of gatherings happen across the country. You’ll see a bunch of old ladies in their 80s and 90s meeting over cakes and coffee in the more traditional types of konditori, and it gladdens the heart.

Killjoy festive news stories

Whenever it’s time for a Swedish celebration, such as Christmas, Easter, Valborg, New Year, I’m always on the look out for the killjoy festive news stories that are a grand, if little recognised, Swedish media tradition.

“Why Christmas is a dangerous time for your pets”, “The particle pollution caused by Valborg bonfires”, “How Sweden’s Christmas herring are dying out”. Whether they come up with a totally new angle or refresh an old classic, no festive period ever passes without a little injection of misery from Sweden’s newspapers and broadcasters.

For me, it says something about the Swedish reluctance to ever really enjoy anything absolutely and without reserve, a hangover perhaps from the country’s Lutheran heritage.

“Alarm on chemicals in Swedish crayfish.” A typically miserable headline for a Swedish festive story. Photo: Screenshot

Rapeseed

This might perhaps be something limited to people who live in Skåne, but the wide fields of bright yellow rapeseed flowers you come across when driving around Sweden in the early summer always blow me away. You come over the crest of a hill and there it is. If you throw in a whitewashed medieval church, and a few wind turbines rotating majestically on the horizon, it can be a breathtaking sight.

A field of rapeseed in Skåne, southern Sweden. Photo: Jerker Andersson/imagebank.sweden.se

The kulturtant, or “culture lady”

Once you develop an eye for them, Sweden’s kulturtantar, or “culture ladies”, are instantly recognisable and everywhere, with their baggy patterned clothes in rough cotton or home-knitted wool, brightly coloured arty looking glasses, and chunky jewellery.

They are gently ridiculed in Sweden as another manifestation of the smug, liberal middle classes, but they are also celebrated as the core audience that keeps Sweden’s cultural world alive. It’s the kulturtantar who buy the theatre tickets, go to the literature readings, and visit the art galleries in Sweden’s cities and towns.

In a country that I sometimes find a bit too practically minded, I’m glad they exist, and a lot of my friends, though still in their 40s, are well on the way to kulturtant status.

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