Thanks to a culture that embraces digital innovation, the Swedish economy is on its way to being free of coin and paper currency, but such a major societal shift is not without causes for concern.
Can you imagine a future where paper money and metal coins don’t exist? While some people might like to fantasize about a future free of currency, some nations are already on the path to being cash-free, at least in a physical sense.
According to a study from Stockholm's KTH Royal Institute of Technology, Sweden is on its way to becoming the world's first cashless society, thanks in part to the country's warm embrace of technology.
"Cash is still an important means of payment in many countries' markets, but that no longer applies here in Sweden," said Niklas Arvidsson, an industrial technology and management researcher at KTH. "Our use of cash is small, and it's decreasing rapidly."
According to KTH, there are less than 80 billion Swedish crowns in circulation (about 8 billion Euro), a sharp decline from 2009, when the total in circulation was 106 billion Swedish crowns.
"And out of that amount, only somewhere between 40 and 60 percent is actually in regular circulation," Arvidsson said.
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The rest is hidden away in people's homes and bank deposit boxes, or can be found circulating in the underground economy, according to KTH.
The transition away from physical currency is being made possible through a mobile payment system known as Swish.
The result of collaboration between major Swedish and Danish banks, Swish is a direct payment app that is used for transactions between individuals, in real time, via institutions such as Bankgiro and Sweden’s national bank, Riksbanken.
But if Swish starts to be used on a larger scale and grows to include retail transactions and e-commerce, Arvidsson said it is likely the country's entire payment system infrastructure may have to be adjusted — and it won’t be the first time Swedish banking has taken the initiative in financial innovation.
Swedish banks have been early adopters of advanced financial tech systems including early electronic payment services and other advances in online financial services, Arvidsson said.
"Combined with a strong IT sector, this has led to more competitive financial services in Sweden,” he said. “The success also depends on the Swedish consumer tradition of welcoming electronic payment services."
Besides simplicity and lower costs, digital payments also add transparency to the nation's payment system. Several banks in Sweden already have 100 percent digitalized branches that will simply not accept cash.
This is having a positive impact on black market cash used for illicit purposes like crime and corruption, according to KTH.
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"At the offices which do handle banknotes and coins, the customer must explain where the cash comes from, according to the regulations aimed at money laundering and terrorist financing," Arvidsson said.
Bank staff are required to file police reports in response to suspicious cash transactions.
In spite of its popularity, Sweden will still have to ensure that all people are able to participate in the new payment system, Arvidsson said. The transformation would present serious challenges for those who are unfamiliar with computers and mobile phones — mainly older people living in rural areas.
Other segments of the population likely to feel the impact are the homeless and undocumented immigrants. In a society without notes and coins, they will be even more at the mercy of government systems to survive
Whether cashless societies spread beyond Sweden is another question.
"Swish is a brilliant idea, but to introduce it internationally is a challenge, not least because it takes a long time to change other countries' banking systems from scratch,” Arvidsson said. “But it is not impossible that a Swish-based banking revolution can also occur abroad."
Based on materials provided by KTH The Royal Institute of Technology
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