When it comes to abandoning cash, Sweden is going it mostly alone.
While cash in circulation in the Nordic region’s largest economy has dropped rapidly in recent years, the amount of notes and coins has risen in most of the rest of the developed world since the global financial crisis, according to a report from the Bank for International Settlements.
Data from the BIS’s Committee on Payments and Market Infrastructures for almost 50 countries showed that overall cash in circulation rose to an average of 9% of gross domestic product in 2016, from 7% in 2000. In Sweden, on the other hand, it slumped to just 1.4% from 4.4%. That’s the lowest level among all the countries surveyed.
As shops, banks and restaurants increasingly stop accepting cash amid Swedes’ growing love affair with digital payments, others are sounding the alarm. The central bank argues that the country may be going cashless too fast and has called for legal changes to safeguard the payment system. It’s also considering whether there’s a need for an official form of digital currency, an e-krona. Lawmakers are at the same time investigating whether measures are needed to safeguard the population’s access to cash.
But many other developed countries are moving in the opposite direction. In Japan, cash in circulation as a percentage of GDP increased to 20% in 2016 from 13.5% in 2000 and in the US, it gained to 8.1% from 6.0%. In the euro area, it rose to 10.7% from 5.1% in 2002.
To be sure, some major countries also saw a drop, including China and India, where cash fell to 9.2% and 8.8%.
“Despite increased use of electronic payments around the world, there is scant evidence of a shift away from cash,” the BIS said in the report. “As the appetite for cash remains unabated, few societies are close to 'cashless’ or even 'less cash.’ In fact, demand for cash has risen in most advanced economies since the start of the great financial crisis.”
That resurgence appears to be driven by so-called store-of-value motives (reflecting lower opportunity cost of holding cash) rather than by payment needs, BIS said. That means as interest rates fall – and even go negative some places – there is more incentive to hold cash.
The report also showed that demand for large-denomination notes has outpaced that for smaller denominations following the global financial crisis, which suggests that cash is being “increasingly used as a store of value rather than for payments,” BIS said.
But not so in Sweden, where demand for all notes have decreased since 2007. While the value of withdrawals from automated teller machines increased to 20% of GDP in 2016 in the countries surveyed by BIS, from 12% in 2007, it now stands at just 2.5% in Sweden. — Bloomberg