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Can Sweden Save Cash?

Categories : Cash does not require a technology infrastructure, Cash ensures competition among payment instruments, Cash generates security, Cash has legal tender status, Cash is a contingency and fall-back solution, Cash is a public good
November 23, 2023
Tags : Access to cash, Central Bank, Regulation, Sweden
The Riksbank calls for urgent action to strengthen cash's position and access, to guarantee financial and social inclusion, and to ensure civil preparedness. Retailers should be obliged to accept cash as payment for essential goods. Banks should be obliged to accept consumer cash deposits.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

For decades, Sweden has been one of the few countries that have seen a sharp decline in cash demand. The value of the currency in circulation peaked in 2007 at just over SEK 110 billion and then dropped to SEK 56 billion in 2017. It has rebounded modestly since, but unlike most countries, Sweden did not see a substantial increase in demand during the Covid-19 pandemic. It did spike, however, following the Russian invasion of Ukraine in February 2022 but has been trending downwards since (see Graph 1).

Graph 1. Sweden: Cash in Circulation, 2016-2018

Source: Riksbank.

An Early Mover to Ensure Cash Access

Sweden has been among the first countries to adopt regulations to ensure the access to and acceptance of cash. A law took effect in 2021, requiring banks to provide adequate cash services. The law was designed to protect the people at risk, such as the elderly, migrants, those with disabilities, the rural, and those who do not have access to digital payments.

An inquiry into the state’s role in the payment market was carried out between 2020 and 2023. On 31 March 2023, the Payments Inquiry presented a report, ‘The State and the Payments,’ which recommends that the government review cash position and access to cash services by 2025 at the latest. The review should at least cover the options for making cash payments, particularly for essential goods such as medicine, food, and fuel, access to cash services, and the development of the cash infrastructure, including distributing banknotes and coins. Should such a review show that the possibility of paying for essential goods in cash is impaired, legislative measures should be considered.

State Intervention Is Required to Correct Market Failures

On 27 October, the Sveriges Riksbank submitted its consultation response to the Payment Inquiry’s report. The response outlines the Riksbank’s perspective on the current state of the payments market and provides feedback on the Payment Inquiry’s proposals. The Riksbank emphasizes the crucial role of the state in ensuring the stability and efficiency of the financial system, especially in facilitating public payments during both every day and crises. While recognizing the responsibility of private actors in payment infrastructure, the Riksbank contends that state intervention is necessary when market solutions fail to meet competition objectives, efficiency, safety, and accessibility.

Too Little, Too Late

The Payment Inquiry conducted a comprehensive survey, revealing deficiencies in access to both digital and cash payments. The Riksbank acknowledges some of the proposed measures to address these challenges but contends that more decisive actions are needed. Concerning cash, here are the critical viewpoints highlighted in the response.

Preservation of cash: The Riksbank urges immediate legislative amendments to safeguard cash status and access to cash services. Emphasizing the importance of cash for digitally excluded consumers and its role in emergency preparedness, the Riksbank proposes measures such as the obligation for banks to accept cash deposits and the possibility of paying cash for essential goods.

«There is a considerable risk that cash will be further marginalised and that in the near future it can no longer be used for essential purchases. The Riksbank therefore proposes legislative amendments regarding the possibility of paying cash for essential goods and an obligation for banks to accept cash deposits from consumers.”

Riskbank response to the Payments Inquiry report

Enhanced access to payment services: the Riksbank stresses the need for payment accounts with limited functionality to improve inclusion. It suggests that credit institutions should provide services adapted to those who struggle with digital transactions and that the state may need to offer payment services to those unwilling or unable to pay digitally at citizen’s centres.

The State’s role in the payments market: While supporting a more active state role in the payment market, the Riksbank contends that the Inquiry’s proposals fall short, especially in preserving the status of cash and preparing for a future e-krona. It emphasizes the state’s responsibility for long-term planning and the use of various tools, including regulation, coordination, dialogue, and direct provision of services if necessary.

Financial Inclusion: The Riksbank supports initiatives to broaden the state’s efforts for essential payment services but insists on clarity in objectives to ensure access to payment services for everyone, including those unwilling or unable to use digital services.

Civil preparedness in the payments ecosystem: The Riksbank agrees that retailers who provide vital goods and services should, as a starting point, accept several payment methods, including those that work in the event of significant disruptions to the electricity supply or electronic communications, as this means increased resilience.

Legal tender in Sweden: Disagreeing with the Inquiry’s assessment, the Riksbank argues for immediate legislative proposals to strengthen cash’s position. Concerned about the decline in cash usage, it believes waiting for a review could risk irrelevance. The Riksbank suggests a broader obligation for retailers providing essential goods and services to accept cash. It points to international examples, such as Denmark and Norway, where legislation mandates acceptance of cash with certain exceptions, and the euro area, where a draft regulation proposes to require the acceptance of cash.

“For cash to be a real alternative for making payments if society is exposed to challenges and elevated preparedness, a basic infrastructure must be in place even in normal times.”

Riskbank response to the Payments Inquiry report

Need for a Central Bank Digital Currency (CBDC): The Riksbank concurs with preparing for an e-krona, critical of the lack of legislative proposals in the Inquiry. It emphasizes the importance of an e-krona for maintaining confidence in the national currency amid digitalization. The Riksbank stresses the need for transparency and public trust in introducing an e-krona.

Strengthening the Position of Cash

In summary, the Riksbank acknowledges the state’s role in shaping a well-functioning, secure, and inclusive payment market and calls for the immediate strengthening of the position of cash in legislation.

“For cash to be used in the future, both under normal conditions and in crisis and war situations, the Riksdag needs to regulate where and how it can be used,” said Ms. Aino Bunge, Deputy Governor of the Riksbank, pointing out that stores should be obliged to accept cash for socially essential goods such as food, fuel, and pharmaceuticals. Banks should also be obliged to accept deposits from consumers.

This post is also available in: Spanish