2 November 2018
Is a national digital currency the means to a completely cashless society?
Sweden is going cashless too quickly, according to a letter published by the Riksbank in October. The Swedish central bank wants to ensure that cash does not disappear entirely in the short term. How? The Riksbank wants to compel all banks and other credit institutions to continue to offer cash services for the time being. The Swedish bank is asking the government to support this plan and is the first central bank to take measures to prevent the complete disappearance of banknotes and coins. Currently, only 13 per cent of payments in Sweden are made with cash.
The actions of the bank are in response to a recently-published advisory report by the Riksbank Committee on the consequences of Sweden’s rapid move towards a cashless society. The report states that while a cashless society may reduce the risks of robbery and money laundering, cash is essential to the elderly, the disabled and newly-arrived immigrants. That’s why, according to the Committee, more than 98% of the population should be able to withdraw money or deposit daily receipts with an institution within 25-kilometre radius.
Which payment solutions does Sweden want to use?
This decision could slow the rapid decline of cash use and give Sweden time to determine which payment solutions the population will use in the future. In order to make a balanced decision, sufficient information must be available. This includes the advantages and disadvantages of a possible new national digital currency, called eKrona. This new currency might share characteristics with cryptocurrencies, but it would actually still be a fiat currency administered, owned, and regulated by a state entity. In other words, the similarities are in fact more in line with the existing fiat currency than with cryptocurrencies.
In the meantime, the Nederlandsche Bank (DNB), the Dutch central bank, has issued a warning about the dangers of a completely cashless society. Dutch people today pay for less than a quarter of their purchases with cash. According to the DNB, a cashless society is vulnerable to technical disruptions or hacking, which is why the DNB wants cash to remain generally accepted.
The development of the eKrona
The warning in the Netherlands makes the development of the eKrona even more interesting, as it shows that more countries are clearly seeking a solution now. The question is if a national digital currency can facilitate a cashless society. That question should be answered soon, as the Riksbank wants to start a pilot project next year. The goal is to create a digital currency that you can load on an app or a card. The eKrona would represent a prepaid value (electronic money) without interest and with traceable transactions.
In order to make this work for everyone, Sweden needs to ensure that not only can the elderly, the disabled, and newly arrived immigrants use the eKrona but tourists can as well. That’s why it’s important to create a system that is secure, simple and effortless to use, so everyone can easily embrace this digital payment solution.
Cashless society not on the agenda in southern Europe
The Netherlands won’t be the only country to closely monitor developments in Sweden. Countries such as Norway, Denmark and Estonia, where cashless solutions are quickly embraced, will be watching as well. In most of southern Europe, including Spain, Italy and Greece, cash is still in high demand. In that area, the idea of a cashless society is not yet on the agenda.