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The use of banknotes and coins as a means of payment is in decline. Although the trend goes back a long way, the covid pandemic has been an accelerator, as revealed by the latest studies that calculate the percentage of operations that are carried out with the different means available. Cash is falling into oblivion to purchase goods and services, although it is still popular to accumulate savings. This is the case in a good part of the developed economies, except Sweden, where the use of cash is falling across the board (there is less and less cash in circulation). The Swedish society, through its own decisions, could end the use of banknotes and coins sometime in 2023, which will make this country the first to make it almost impossible to make a payment with cash.

Sweden has always been at the forefront when it comes to payments. The first banknote in the world was issued by the Bank of Stockholm in Sweden. as an alternative to coins in 1661. Now, the same country will be the first to put an end to their use to purchase goods and services. The Riksbank itself explains on its website that in 2010, 39% of those who used cash regularly for their payments. By 2020, this figure had fallen to 9%. Some 2021 surveys lower the figure to 7%. It is expected that in 2023 this percentage will be testimonial, making Sweden the first country that does not use cash (cashless) as a means of payment.

“Sweden’s economy is on track to go fully digital next year as cash transactions become history,” said Clarissa Dann, editorial director of corporate banking content at Deutsche Bank.

Europe’s first banknote

Deutsche Bank Research analyst Marion Laboure highlighted in an article titled ‘A Cashless Society: One Small Step for Sweden, One Giant Leap for Payments’, that Sweden has always been a pioneer in new payment technologies. “It was the first country in Europe to introduce banknotes.

The Riksbank itself explains on its website how the first official issue of a banknote in Europe took place. It was the Bank of Stockholm (Stockholms Bank) who issued the first real banknotes in Europe. “They were a great success, but it all ended with a bank failure,” explains the Riksbank article. Let’s hope that now the first cashless society doesn’t end the same way.

One of the first banknotes in Europe

It was Johan Palmstruch, founder of the Bank of Stockholm, Sweden’s first bank, who issued the notes. Why were the tickets issued? The Riksbank explains that it all started in 1660. The central government had started to mint new coins of lighter weight than the old ones (to replace them). This caused many depositors to want their older, heavier coins back, as they had a higher metal value. This generated a kind of bank run or panic (everyone withdrawing their deposits at once and leaving the banks dry).

To counter this move, Palmstruch began issuing certificates of deposit. This was a ‘paper’ that had a high value, since it gave the owner the right to withdraw the amount deposited in coins.

The special thing about certificates of deposit, which were also called credit notes, was that the bank was no longer dependent on having money on deposit in order to lend. The new certificates began to be delivered as a kind of bank loans. They could be used to buy anything and that is how the first banknotes in Europe were invented, almost unintentionally.

“What was new about the Palmstruch notes was that they were not tied to any deposit. Instead, they were based on the general public’s confidence that the bank would pay the value of the note in coins upon request. The banknotes quickly became popular because they were more convenient than the heavy and cumbersome coins made of copper. During the following years, the bank printed more and more banknotes,” they explain from the Riksbank.

This large printing of banknotes caused a drop in their value, a phenomenon that we now know as inflation. Eventually, trust among the general public was lost, and many people demanded their coins. But the Bank of Stockholm did not have enough coins and, therefore, he began to demand the return of the loans that he had granted (with banknotes). This commotion ended with a bank failure and many people suffered financial problems,” the Riksbank article states.

Sweden, always at the forefront

Beyond banknotes, Sweden has always been at the forefront of Europe when it comes to finance and regulation. Between 1661 and 1668, the Riksbank became the world’s first central bank. In the late 1980s and early 1990sSwedish banks had started to introduce card payments, the most important and popular retail payment method today for low-value, high-volume transactions,” says the expert.

Now, Sweden will become the first society in which cash payments will cease to exist. “With Sweden leading, China and Brazil are among the countries looking to reduce/eliminate cash. In China, currency in circulation declined from 11% of GDP in 2012 to just over 8.5% in the second quarter by 2022, and more than three in four Chinese consumers now prefer digital payments to cash. China is also the world’s largest mobile payment market and a leader in peer-to-peer (P2P) payments. Progress in digitization has been encouraged by the widespread use of quick response (QR) codes through Alipay and WeChat Pay. Simplicity and security have made these two payment platforms increasingly popular,” says Labore.

A global trend?

However, the trend is far from global. Although payments are increasingly digital, in most societies the issuance of cash has increased (especially due to demand as a means of saving). “Sweden and China are two of the few countries where cash in circulation has decreased in the last 10 years.. So while the trend towards a cashless society spreads to many other countries around the world and central bank digital currencies (CBDCs) are set to progressively displace cash, it will continue to be used as a reserve of cash for many years to come. value and as a means of payment”, maintain from Deutsche Bank.

In fact, as a store of value (savings) it continues to increase in the Eurozone, the US and Japan as a percentage of GDP. Cash is king when there is a crisis, like a financial shock or a pandemic,” says Laboure, citing the increased use of banknotes during the three months after the collapse of Lehman Brothers at the end of 2008.

However, in an environment of rising interest rates, keeping cash can be a very bad financial decision. Inflation eats up the purchasing power of cash, so many households and companies may choose to look for alternatives to reduce this blow (deposits, shares…). Rising interest rates are an incentive for consumers to save or deposit money. A Deutsche Bank Research analysis of interest rate hike cycles in the US and UK, focusing on the period 1960 to 1983, concludes that high interest rates historically contribute to reducing the amount of cash in circulation.” .

The new era of inflation and high interest rates “will likely drive the transition to digital payments,” according to Labore, with a growing number of central banks working on developing alternatives to physical cash. Nine out of 10 global central banks are at least in the early stages of developing a CBDC (Sweden is also one of the most advanced), while 62% are experimenting at the proof-of-concept stage. As the Bank for International Settlements (BIS) says, “interest in CBDC has grown in response to changes in payments, finance and technology, as well as the disruption caused by covid-19. A BIS survey of banks Centrales de 2021 found that 86% are actively researching the potential of CBDCs, 60% are experimenting with the technology, and 14% are implementing pilot projects.”

Despite everything, Laboure believes that cash will remain essential. “Keep in mind that some 1.4 billion people around the world, more than one in five, remain unbanked and dependent on cash. The elderly and those who use it for small payments still rely on currencies and banknotes Remains popular with consumers Traditional currency is needed during a natural disaster when access to digital payments could be disrupted Unlike digital payment systems, it is not vulnerable to hackers and attacks cybernetics,” says the Deutsche Bank expert.


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J. A. Allen

Author, blogger, freelance writer. Hater of spiders. Drinker of wine. Mother of hellions.

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