Sweden is at a crossroads with its nearly cashless society: To Swish or e-krona?

Sweden is almost winning the race towards becoming the world's first completely cashless society. The Swedish retail payment market is also moving away from using cash. Last year in September BBC news reported that barely 1% of the value of all payments were made using coins or notes last year.

On Saturday, Cecilia Skingsley, Deputy Governor, Central Bank of Sweden shared on the World Economic Forum blog ‘Why Sweden's cashless society is no longer a utopia’. Following are the highlights from the post.

The potential consequences of going cashless

Going cashless was a move against robberies and corruption. Also, it gives ease and convenience to people. The retailers, restaurants and other companies in Sweden refuse to accept cash, for instance by putting up a sign at the entrance. But all this has led to some concerns regarding the state’s role in the payment market as the private sector is getting more power. The Swedes might have to rely on the private sector for access to money and payment methods. There might be a situation where the general public no longer will have access to central bank money. Riksbank, the central bank of Sweden is investigating the potential consequences of this change.

For Sweden, going cashless would mean choosing one of the following options:

The general public no longer has access to central bank money

E-krona - central bank issued money in a digital form, as a complement to cash and the money held in bank accounts

What if the Swedes get a central bank digital currency?

One solution to the problem is to issue central bank money in a digital form, as a complement to cash and the money held in bank accounts. This concept, known as E-krona, was named after the Swedish currency, krona. Though bank-issued digital currency is a new concept and a relatively unexplored possibility, it is still attracting a number of central banks. E-krona is not to be confused with cryptocurrencies as is not dependent on using blockchain technology.

The basic concept behind e-krona is to have a 1-to-1 conversion with an ordinary krona held in an account at the Riksbank or stored locally, for example on a card or in a mobile phone app. The Riksbank will provide an infrastructure for E-krona transactions. The payment service providers can connect to it and can build payment services for end users.

It would be interesting to see the impact on the financial system which would depend on the demand for the e-krona in different circumstances. Whether it will earn interest or not is another important question. If it offers zero interest, then it will be equivalent to cash. In contrast, an e-krona with interest could possibly become a new policy tool for the central bank.

Swish- an easy payment system!

Swedes were already happy to adapt to new technologies. In 2012, Swish, a mobile payment system in Sweden was launched by six large Swedish banks, in cooperation with the Central Bank of Sweden. It had 6.5 million users as of September 2018. Swish has been downloaded by more than half of the Swedish population.

One just needs to connect a bank account (in any bank) with a mobile phone number. Swish has become a popular way to share a restaurant bill, collect money for a birthday gift at the office and to pay for goods at street markets and even to distribute pocket money to children.

Though Swish has been the choice for many, still there’s a high possibility of E-krona being a powerful tool. Considering the fact that Central bank will have the control in its hand, the chances of safety might increase. But how open would people be to shift to E-krona would be an interesting take.

Also, worth watching is how Sweden enables a safe, efficient and inclusive payment market irrespective of whichever route (payment regulation vs digital currency) it choose to take to usher its cashless society.

To read more on this, check out the official blog of the World Economic Forum.

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