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.

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.

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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.

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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.

For members


Three ways Sweden’s slashed interest rate will boost your finances

Sweden's central bank, the Riksbank, in May lowered the policy rate for the first time in eight years. How could this affect the finances of those of us living in Sweden?

Three ways Sweden's slashed interest rate will boost your finances

Lower mortgage rates

The policy rate is not the same as the interest rate on your mortgage, although they are linked. In a policy rate prognosis from March, the bank predicted that the policy rate could drop to as low as 2.75 percent by the end of 2025, a drop of 1.25 percentage points since the beginning of 2024.

If mortgage rates drop by the same amount, you could expect a drop in the monthly cost of a 3 million kronor mortgage of around 3,000 kronor a month, not including the tax rebate for interest costs.

Higher property prices

As mortgage rates get lower, the housing market is likely to improve, as buyers know their monthly costs aren’t going to skyrocket due to ever-rising interest rates.

If you already own a home and you’re planning on buying and selling at the same time in the market, this will affect you less, as the price of your new home will most likely go up at the same rate as the price of your old home, but this is good news for anyone planning on selling.

It’s worse news for first-time buyers, who will have to save a larger deposit as prices go up, but on the other hand they’ll get lower mortgage rates and a more stable policy rate makes it easier to plan ahead for the future without being surprised by ever-increasing rates.

A stronger Swedish economy

The Riksbank’s decision to lower the interest rate is proof that the bank believes inflation is over – for now at least. This means that we can expect to see inflation remain at a more stable level, and we’re unlikely to see anything close to the ten percent inflation we saw at the end of 2022.

Lower inflation means that Swedish monetary policy won’t need to be as cautious or restrictive in the future, as the government and the central bank no longer need to put all their efforts into fighting inflation.

That’s not to say that authorities will start stimulating the economy just yet – they’re likely to proceed with caution to make sure inflation really is down for the long-term – but Thursday’s interest rate announcement indicates that the “economic winter” Finance Minister Elisabeth Svantesson warned of in September last year could be drawing to a close.

Is it all good news?

In the short term, the value of the krona is likely to worsen somewhat, as the central bank has lowered Sweden’s interest rate ahead of other major central banks. The krona weakened slightly after the bank’s announcement on Thursday, dropping 8 öre in value against the dollar and 7 öre against the euro.

This is good news for people with income in other currencies, but bad news for those of us who are paid in kronor.

Having said that, a stronger Swedish economy is good news for the value of the krona in the long term, although it’s difficult to predict when the krona will start to gain in value and by how much.

At the end of last year, Riksbank governor Erik Thedéen described the krona as “undervalued”, and underlined the importance of having strong foundations in the Swedish economy.

“The Swedish economy is, at its foundations, well-managed, and sooner or later this will lead to a stronger exchange rate,” he said. “Sweden has strong finances, a well-educated labour force, responsible salaries and a good underlying level of competition.”

“As anyone who has tried to predict the exchange rate knows, it’s genuinely difficult to say exactly when it will go up and by how much, but it can also happen quickly when the trend is broken and the krona starts to gain in value.”