Point of View: Going Cashless

• Author: Stefan Ingves
• Pages: 11-12

June 2018 | FINANCE & DEVELOPMENT 11

SWEDEN IS RAPIDLY moving away from cash.

Demand for cash has d ropped by more than 50

percent over the past decade as a growi ng number

of people rely on debit cards or a mobile phone

application, Swish, which enables real-time pay-

ments between individua ls. More than half of a ll

bank branches no longer handle cash. Seven out

of ten consumers say they can ma nage without

cash, while hal f of all merchants expec t to stop

accepting cas h by 2025 (Arvidsson, Hedman, and

Segendorf 2018). And cash now accounts for just 13

percent of payments in stores, according to a study

of payment habits in Sweden (Riksban k 2018).

Digital solutions for large payments bet ween

banks have existed for some time; the novelty

is that they have ltered down to indiv iduals

making sma ll payments. And my country isn’t

alone in this rega rd. In several Asian and Af rican

countries—for exa mple, India, Pakistan, Kenya,

and Tanzania—payi ng by mobile phone instead

of cards or cash is commonplace.

Given that the role of a central bank is to manage

the money supply, these developments potentially

have wide-ranging consequences. Are central banks

needed as issuers of a means of payment in a modern

digital payments market? Are banknotes and coins

the only means of payment for retail payments

that should be supplied by a central bank? Is there

a risk of future concentration in the payments

market infrastructure that central banks should

be monitoring?

In Sweden, clearing and tra nsfers between

accounts are concentrated in one system, Ba nkgirot.

Once the payments market inf rastructure i s in

place, the margina l costs for payments are low and

positive externalities are pres ent. What do we mean

by “positive externalities”? A classic ex ample is the

telephone. Having the rst telephone is not very

valuable, as there would be no one to call. However,

as more people eventually connect to t he telephone

network, the value of the phone increases.

e same is true for the payments ma rket—the

value of being connected to a payments system

increases as more people join. Moreover, pay-

ments can also be rega rded as collective util ities.

Considering this, my view i s that the state does

indeed have a role to ll in the payments marke t—

namely, to regulate or provide the infrastr ucture

needed to ensure smooth funct ioning and robustness.

Citizens can expect a payments market to meet a few

basic requirements. First, its services should be broadly

available. Second, its infrastructure should be safe and

secure. Sellers and buyers should be convinced that

Going Cashless

The governor of the world’s oldest central bank discusses his

country’s shift toward digital money

Stefan Ingves

PHOTO: PETTER KARLBERG/KARLBERG MEDIA AB

POINT OF VIEW

In a cashless society, what

would legal tender mean?