Imagine a country in which banks hold virtually no cash at all. A country
where if you walk into a bank branch, the clerk won’t be able to help you
make a deposit. A country where there’s a good chance that if you grabbed a
wad of cash and walked into an electronics store or a major nightclub, they
wouldn’t be able to assist you in buying a new computer, nor get your drink
on.
Welcome to Sweden, the land of virtual cashlessness! Although the Swedish
Riksbank recently launched a full array of new and very colorful bills
featuring celebrities such as famous children's book author Astrid Lindgren
and film director Ingmar Bergman, cash usage in Sweden is in absolute
freefall, down from SEK 100 billion in 2010 to SEK 70 billion in 2015.
Several factors combined has led to this development.
- Since many years, most Swedes above age 16 use a VISA,
Master or Maestro debit card to settle payments, even for smaller sums
below $10.
- Sweden is, and has for many years been, in the forefront
in both developing and adapting new IT technology and early became one
of the most mobile phone dense countries in the world, with upwards of
60% of the Swedish population owning a mobile phone as early as
1999.
- The Swedes willingness to adapt new technology is
evident from the proliferation of a transfer system called ‘SWISH’. The
SWISH app enables any two parties holding a Swedish bank account and a
Swedish phone number to transfer money to each other instantly, with no
fees. Even merchants use SWISH to accept payments. There are homeless
people selling newspapers accepting payment via SWISH. In Stockholm,
these homeless sellers have even been accepting credit card payments
since as early as 2013 using a smartphone extension known as
‘iZettle’, also invented in Stockholm Sweden.
- During the last few years, more than 70% of all bank
branches in Sweden has gone cashless, meaning that if you walk into a
bank branch in Sweden, there’s about a 70% chance (or even higher) they
won’t accept any cash you try to deposit.
- There are virtually no payments being made by cheques
anylonger in Sweden as banks stopped issuing cheque books years ago.
Tech loving Swedes
Some of the facts listed might sound unbelievable and even absurd for
someone not living in Sweden: No cash in the bank? Homeless people accepting
credit card payments?
Yes, the Swedes seem extremely willing to accept new cashless payment
technologies, such as credit/debit cards as well as payment apps, and forgo
old ones, such as cash and cheques. All with little or no suspicion towards
these new electronic payment methods.
Other countries have tried the same but failed. Singapore tried, or at
least planned to try a new electronic cash system named SELT or ‘Singapore
Electronic Legal Tender’. In an OECD report issued in 2002, the Board of
Commissioners of Currency (which was the sole currency issuing agency
preceding the merger with MAS in 2002) outlined the envisioned structure of
the SELT system where the goal was said to be reducing physical cash usage
and its handling costs.
As can be read from the 2002 OECD report, the SELT system was in a very
early conceptual stage and only outlined in very broad strokes. Interesting
to note is that as early as 1998 the BCCS held a strategic planning seminar
in which it set as its ‘corporate vision’ the introduction of SELT within 10
years.
The 2002 report further states that the SELT system was to be put in
place in order to effectivize the cash currency system. The SELT system never
came to fruition, and as is evident from the statistics displayed further
down in this article, the amount of cash currency circulating in Singapore
has increased immensely since 2002. As have the amount of cash ATM machines,
where there were way less than 2000 units back then. The OECD
report also mentions that although cash transaction costs in Singapore are
extremely low, the cost to the economy was approximately SGD 656 million in
1998 and was projected to exceed SGD 1 billion by 2006.
As absurd as it might sound, the abolition of cash is slowly
unfolding in many countries and Sweden is probably at the forefront of this
trend. Although a majority of stores still accept payment in cash,
there are an increasing number who don't. Swedish law doesn't
require a merchant to accept payment in cash, which is a bit funny
considering that cash is still legal tender in Sweden and legal tender
normally means that what ever is legal tender should be good
for the payment of all debts.
Now, if a merchant doesn't want to accept ready cash, so be it. What is
more shocking is that, as was mentioned in the beginning of this article,
about 70-80% of all Swedish bank branches have removed all cash handling. All
within just a few years time. No, it's not a typo. Walk in to a random
Swedish bank branch and try to deposit or withdraw a larger sum of cash
and up to 80% of the time you'll get rejected with a polite "sorry, but
this branch doesn't handle any cash". These branches only provide
services such as financial advising, housing loans, credit cards
services etc. Most of it meant to get money out of your pocket and into
the pockets of the banks'. Bank staff is pushed by it's management to sell
house loans, credit lines, speculative paper instruments, and more
savings accounts. The aforementioned has been made evident in the extreme
case of Wells Fargo's latest banking scandal involving the concept of cross
selling accounts with the goal of every Wells Fargo customer holding a
minimum of eight accounts with them. Why? Because, in the words of former
Wells Fargo's Chairman John Stumpf : 'Eight is great!'.
All this means that if you open an account at a Swedish bank
branch, you can only fund your account by either going to a branch
that does handle cash or by transferring money to the new account from an
already existing account.
During the last 5-10 years in Sweden, M0, which is an aggregate measuring
the amount of physical cash in an economy, has collapsed from over SEK 100
billion down to about SEK 70 billion.
In Singapore, cash money has increased from around SGD 21 billion in
2010 to SGD 33 billion in 2015.
More statistics from the World Bank shows us that the number for Automated
Teller cash Machines has increased from less than 48 per 100K citizens, to
more than 59 in 2014. And the trend seems to be a continued increase.
Increasing number for ATMs in Singapore
The above data means that there are now more than 3200 ATMs island wide in
Singapore as compared to less than 2000 units in 2004.
Cashless means less crime!
One argument to making the economy totally cashless is that it would
cripple crime. Crime syndicates, burglars, drug dealers, petty theives - they
all rely on an anonymous paper cash system to sell their contraband. If we
just eliminated cash paper bills, then drug dealing, robbery, burglary even
tax fraud would almost totally disappear. Right?
One of the most avid proponents of a total cash ban is a famous Swedish
musician by the name of Björn Ulvaeus. Ulvaeus, is known for being
a member and founder of the super group ABBA (that ironically wrote the song
"Money, money money"). A few years back, Ulvaeus's son got
burglarized several times and expensive music equipment was stolen from
him. Ulvaeus' reasoning behind banning cash is that if there where no cash at
all, but only electronically traceable payment systems, the burglars wouldn't
be able to sell the stolen items on the black market, and as such, the theft
would have never occurred.
Although slightly confused, Ulvaeus is still onto something. In two opinion
articles published in mayor Swedish newspapers a few years ago, he mentions
barter and its limitations.
History shows time and time again that humans have overcome the
limitations of barter in numerous ingenious ways. Be it through using
precious shells, stones or metals - such as gold and silver - or be it
through local and informal credit systems, the challenges of barter has
always been overcome as long as the need and demand for such a system exists.
For instance, cheques issued by the army and used by British soldiers
stationed in Hong Kong in the 1950s, started to circulate as a cash currency.
The faith and credit in these cheques amongst local merchants was
universal, so why bother with the inconvenience of cashing them in when you
could let your supplier do that instead. Anthropologist Keith Hart tells the
story of his brother stationed in Hong Kong in the 1950s . Keith's brother
was more than a little surprised when he one day found a cheque signed by him
6 months earlier laying on the counter of a local bar with more than 40
different small signatures on the back stemming from each merchant
legitimizing the validity of the cheque. A game of confidence. A
spontaneously arisen form of cash.
In jails, alcohol, sticks of cigarettes and more recently ramen
nodles, are being used as currency. These gods arise spontaneously as the
universally most sought after and can thereby be used as currency or money to
buy anything else. No government, army, police or bank was needed to give
these goods the status of money. They emerged spontaneously in the market
place just as gold and silver has done so many times in history before.
Is the banking system of today showing itself for what it really is:
A pyramid scheme where your money is used to speculate in questionable asset
classes who's value is propped up only by the very investors (the banks) that
are buying into these asset classes with the help of money emanating from an
endless pool of credit fueled by the central banks' artificially low or even
negative interest rates?
Negative interest rates and cashless society: A precursor to
hyperinflation?
When the negative interest rates of the central banks spreads to the commercial
banks, a lot of people will want to withdraw their money. As long as
cash is readily available, this is not an issue. At least not as long as not
everyone decides to withdraw all at once. But if cash use is highly limited,
as in the given example with Sweden, withdrawing your money will be hard or
impossible. A cashless or 'cash strapped' society is effectively hindering a
bank run to happen, as this in reality gives the banks a debt
cancellation or at least a massive debt forgiveness, because remember,
the balance on your account is the banks debt to you. If there's no cash,
then how can the bank pay its debt to you?
More on this in part 3
Sources:
http://www.oecd.org/futures/35391062.pdf
http://www.mas.gov.sg/currency.aspx
Debt: The First 5000 Years - David Graeber
http://www.scb.se/
https://www.riksdagen.se/sv/dokument-lagar/dokument/yttrande/nu2y_GN05NU2y
