Sweden’s central bank has called for ‘urgent’ strengthening of cash as a payment means in legislation.
The Scandinavian nation’s authorities’ actions and policies on payments are closely watched internationally because it among the countries worldwide where cash is least used.
In a response to a report on the state’s role in payments, the Riksbank’s senior figures state that ‘legislation on cash needs to be tightened up immediately’ and ‘political decisions are needed urgently so that everyone can pay’.
The Riksbank leaders’ letter, sent to the Ministry of Finance’s financial markets department, comes just under six months after the ‘Payments Inquiry’ submitted its report to government. The inquiry reviewed the state’s role and took a position on this should look like in the future (the report is available in EN as ‘The state and the payments’, a 24-page summary document).
The Riksbank asserts that the state, including the central bank, ‘should have a more active role in the payment system and that several of the Inquiry’s proposals need to be tightened and clarified’.
“Firstly, the position of cash needs to be strengthened so that consumers can use cash for payments,” said central bank governor Erik Thedéen in a press release issued alongside the 14-page letter. “Secondly, more consumers and businesses need access to payment accounts. Everyone who needs to pay must also be able to pay.”
Cashless society: ‘not in foreseeable future’
The mandate for the inquiry – led by Anna Kinberg Batra, a former finance committee chairwoman in the Riksdag (Swedish parliament) who was appointed to undertake the investigation in December 2020 – included taking a position on the significance and need for certain means of payment to be legal tender. It also took a view on the need for a central bank digital currency (CBDC) in Sweden – a potential e-krona.
Its report noted that ‘far too many people lack access to digital as well as cash payments’, stating that ‘the state needs to assume a greater responsibility for everyone being able to make payments’. It continued that the ‘possibility of paying with cash is… important for a more inclusive payment market, but also from a civil preparedness point of view [and that] in this respect, too, there are reasons for the state to assume a greater responsibility.’
‘The use of cash for payment purposes has gradually declined over a longer period of time and is now comparatively low,’ the inquiry reported, before adding that demand for cash has ‘remained virtually unchanged’ over the past five years. ‘Analysts have concluded that development is clearly towards (in principle) a cashless society, especially in Sweden. The statistics, however, do not point to such a development, at least not that this will occur in the foreseeable future.’
The inquiry assessed that ‘the government, or the authority designated by the government, should review the position’ of cash and access to cash services by 2025 at the latest. ‘The review should at least cover the options for making cash payments, in particular for essential goods such as medicinal products, food and fuel, access to cash services, and the development of the cash infrastructure, including the distribution of banknotes and coins,’ it stated, adding that ‘should such a review show that the possibility of paying for essential goods in cash is clearly impaired, legislative measures should be considered.’
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Risk of cash being ‘further marginalised’
‘Cash is essential for digitally and financially excluded consumers,’ the Riksbank states in its letter. ‘Cash is also the only payment instrument that can be used independently of electricity and telecommunications and is therefore important for Sweden’s emergency preparedness. There is no reason or time to wait for a new review, as the Inquiry infers. There is a considerable risk that cash will be further marginalised and that in the near future it can no longer be used for essential purchases.’
‘The Riksbank therefore proposes legislative amendments regarding the possibility of paying cash for essential goods and an obligation for banks to accept cash deposits from consumers,’ it continues.
In respect of CBDC, the Riksbank has progressed through stages of experimentation with a potential e-krona. But the inquiry said it did not ‘currently see sufficiently strong societal needs for the Riksbank to issue an e-krona’. Albeit it added that ‘given that development is occurring rapidly, economic, political and technological changes may prompt a new assessment’.
The inquiry’s report suggested that the central bank ‘should continue to evaluate the basis for introducing an e-krona in order to enable an introduction within a reasonable timeframe in the event that the Riksdag makes such a decision’. It proposed that the central bank ‘should therefore come back with a petition to the Riksdag during 2024 with an assessment of whether there are sufficient reasons to introduce an e-krona’.
In its letter, the Riksbank urges ‘that work on producing legislation for a possible e-krona must begin now’.
Sweden is part of the 27-member European Union but not part of the 20-member eurozone. The European Commission presented a bill on a digital euro in June and the European Central Bank’s Governing Council has just given a thumbs-up to move to a ‘preparation phase’ for a potential eurozone CBDC. The Riksbank believes this ‘hastens the need for Swedish legislation for a possible issuance of an e-krona’. Sweden ‘must be prepared if other countries in our neighbourhood go ahead with the introduction of a central bank digital currency,’ its letter states.
Finance ministry analysis underway
In November 2022, the Riksdag adopted a new Sveriges Riksbank Act giving the central bank clearer and partly expanded responsibility for the cash infrastructure.
One reason stated for giving the central bank this responsibility was that it is becoming less profitable for the private sector to maintain cash infrastructure. The act also gave the Riksbank new responsibility over civil contingency planning for payments.
‘Since the company ClearOn discontinued its Kassagirot service [in 2022], there have been very few options for redeeming payment slips and paying bills in cash,’ it stated at the time. ‘If cash is to be used in the future, the right of individuals to pay with it must be protected. The Riksbank believes that it must be possible, at a minimum, to use cash to purchase vital goods and services and that this is best ensured by strengthening its status as legal tender.’
The Ministry of Finance told Global Government Fintech that it was “analysing all the comment letters that we have received concerning the inquiry” and that it would then “present possible next steps”.