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World’s Oldest Central Bank Keeps Sounding Alarm on Fragility of Cashless Economies. Are Other Central Banks Listening?

May 11, 2024

World’s Oldest Central Bank Keeps Sounding Alarm on Fragility of Cashless Economies. Are Other Central Banks Listening?

At a time when the dominant narrative around cash is that its demise is all but inevitable, as well as broadly desirable, the 2024 payment report by Sweden’s Riksbank may offer a cautionary tale. 

In October last year, in More Good News for Cash in Europe, More Bad News for Digital Dollar in US, we reported that recent developments suggest that the trend away from cash and toward purely digital-only payment systems may not be quite as smooth or as seamless as some may have wished or expected. One of the developments we highlighted in that report was growing concern among central bankers and politicians in Sweden, one of Europe’s most cashless economies, about the unintended consequences of driving cash out of the economy:

Even by late 2020, Sweden had less cash in circulation than just about anywhere else in the world, at around 1% of gross domestic product, according to the latest available data. That compares with 8% in the U.S. and more than 10% in the euro area. As a recent piece in Interesting Engineering notes, Sweden is already “officially cashless”:

Cash is never needed, not even for small purchases like hot chocolate at a Christmas market in Stockholm. All vendors have a mobile payment chip-and-PIN card reader like the one offered by Stockholm-based mobile payments company iZettle, or they accept payments through the mobile application Swish. Swishing is perhaps the easiest way of payment for everyone.

The Risks of Going Fully Cashless

But now the country is beginning to realise that an almost exclusively digital payments system comes with significant risks, especially at a time of heightened geopolitical tensions. In time-honoured fashion, the article in the UK Telegraph began with a spot of fearmongering about Vladimir Putin.

…click on the above link to read the rest of the article…

Swedish Central Bank Makes U-Turn on Cash as NIRP is Ending

October 27, 2018

Swedish Central Bank Makes U-Turn on Cash as NIRP is Ending

Cash is less of a threat to central bank policies when interest rates rise above zero.

Sweden’s Riksbank has become the first central bank in the 21st century to take concrete measures to ensure that cash does not disappear as a means of payment from the financial system. To that end, the Riksbank proposes, in a document published on its website, to make it mandatory for all banks and financial institutions to offer cash services.

The pronouncement comes in response to a recent policy suggestion by the Riksbank Committee that only the country’s six major banks should be obligated to continue offering cash services.

That prompted a backlash from Sweden’s competition watchdog, which argued that the plan would distort competition as it would affect only a few of the nation’s banks. In response, the Riksbank has opted to apply the rule to “all banks and other credit institutions that offer payment accounts.”

There was also a difference of opinion between the Riksbank Committee and the central bank’s senior management on the issue of deposit facilities. While the Committee recommended that banks should only be obligated to provide deposit facilities to businesses, the Riksbank believes it is important for banks to also offer deposit services to individual citizens:

“This is a service that consumers can reasonably expect of credit institutions. There must also be symmetry between withdrawal and deposit facilities. In the Riksbank’s view, there is otherwise a risk that the possibilities for individuals to make deposits will decrease even further in the future. For most consumers, it would also be difficult to understand why they can withdraw cash from an account but not make deposits.”

…click on the above link to read the rest of the article…

Swedish Central Bank Voice Alarm

March 1, 2018

Swedish Central Bank Voice Alarm

QUESTION: Hi Martin,

Yesterday the Swedish Riksbank Chairman Stefan Ingves went on prime time TV expressing fear that public authorities are losing control over the Swedish currency! He also on prime time TV asked rhetorically -We have asked our self what is money?! Can you believe that!?
What the heck is going on? The Chairman of the WORLDS OLDEST CENTRAL BANK goes on prime time TV expressing fear for the public to lose confidence in the Swedish KRONA! Also saying that private companies are taking control over the currency and that cryptocurrencies are a threat.
I know the Swedish Krona is a small currency but one of the oldest still alive today. What does Socrates say about the Swedish Krona?
Stefan Ingves also yesterday published a long article in Dagens Nyheter, a national magazine expressing the same fear. A large finance paper published an article yesterday about this issue. Here is the link.
ANSWER: Sweden is the oldest Central Bank. That is where it all began. The first true banknotes for circulation appeared in Sweden, and these were actually used by the government to support its wars with Germany. In 1661, the government established a 30-year monopoly for its Stockholm Banco to issue these banknotes known as “letters of credit” that were to be payable in Swedish copper plate money that was extremely heavy weighing almost 15 kilos. It was not very practical for actual circulation. However, this practice was abused and ended up supporting the king. This led to the first banking panic in 1663 when there were more obligations than money to now redeem the notes. The bank was forced to close in 1664.

…click on the above link to read the rest of the article…

Swedish Authorities Fear “Negative Spiral” As Society Goes Cashless ‘Too Fast’

February 21, 2018

Swedish Authorities Fear “Negative Spiral” As Society Goes Cashless ‘Too Fast’

In 1660, Sweden’s Riksbank was the first central bank in the world to issue paper currency.

In 2016, Sweden began to accelerate its transition from cash to digital currency.

At the time, Deputy Riksbank Governor Cecilia Skingsley warned:

“We need to do the homework because it’s not an option for the public sector to stay on the sidelines and see the private sector cut off access to central bank money for individuals.”

A year later, in 2017, cash in circulation was plummeting and establishment economists celebrated the battle in the war on cash.

Additionally, Riksbank was actively looking toward cryptocurrencies as potential government-backed money.

But now, in 2018, Swedish officials are worried that too much (or too little in this case) is a bad thing warning:

“If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash.

As Bloomberg reports, Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments.

But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society.

“No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile.

Last year, the amount of cash in circulation in Sweden dropped to the lowest level since 1990 and is more than 40 percent below its 2007 peak. The declines in 2016 and 2017 were the biggest on record.

But the pace at which cash is vanishing has authorities worried.

“One may get into a negative spiral which can threaten the cash infrastructure,” Mats Dillen, the head of the parliamentary review, said.

“It’s those types of issues we are looking more closely at.”

…click on the above link to read the rest of the article…

‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far

February 19, 2018

‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far

  • Cash usage declining both as share of GDP and in nominal terms
  • Riksbank committee could publish report on issue in summer
Sweden ‘Most Cashless’ Society in the World
The value oof notes and coins in circulation are the lowest in nearly 30 years. Bloomberg’s Amanda Billner reports.

“No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile.

But the pace at which cash is vanishing has authorities worried. A broad review of central bank legislation that’s under way is now taking a special look at the situation, with an interim report due as early as the summer.

Going Cashless: Bad for Tax Cheats, Privacy, the Poor: QuickTake

“If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review. He declined to give more details on the types of proposals that could be included in the report.

Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments. But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society.

“One may get into a negative spiral which can threaten the cash infrastructure,” Dillen said. “It’s those types of issues we are looking more closely at.”

Last year, the amount of cash in circulation in Sweden dropped to the lowest level since 1990 and is more than 40 percent below its 2007 peak. The declines in 2016 and 2017 were the biggest on record.

…click on the above link to read the rest of the article…

From the Moneyness Blog: Electronic Money Will Only Save Central Banks From Subjugation if it is Anonymous

February 9, 2018

FROM THE MONEYNESS BLOG: ELECTRONIC MONEY WILL ONLY SAVE CENTRAL BANKS FROM SUBJUGATION IF IT IS ANONYMOUS 

50 SEK banknote issued by the Riksbank in 1960

“Do we need an eKrona?” asks Stefan Ingves, the Governor of the Riksbank, Sweden’s central bank. The Riksbank is probably the central bank that has advanced the furthest in discussions surrounding the introduction of a central bank-issued digital currency (CBDC)—a new form of risk-free digital money for use by the public. Canada, New Zealand, Australia, the ECB, and China are also dissecting the idea, with more central banks to come in 2018.

Sweden is approaching the issue from a unique angle, says Ingves. It is the only country in the world showing a consistent decline in cash and coin usage. I’ve written about this interesting pattern here, here, and here. Below is a chart:

Ingves floats two theories. Either the Swedish public no longer wants central bank money, or alternatively they do want central bank money but not the type that is “made of pieces of paper,” preferring instead an as-yet non-existent digital alternative. If so, then it may be the Riksbank’s duty to provide that alternative, says Ingves.

Duty is an admirable motivation, but let me propose another reason for why the Riksbank is exploring the idea of an eKrona—self preservation. I think Sweden’s central bank is terrified that it will become powerless in the future. It is desperately casting around for solutions to resuscitate itself, one of these being an eKrona. This fear is rooted in the fact that declining cash usage has led to a collapse in the resources that the Riksbank believes that it needs to function.

These worries about powerlessness are shared by central bankers around the world, many of whom expect advances in private payments technology to lead them to the same cash-light world that Sweden is currently entering.

…click on the above link to read the rest of the article…

Sweden: The World’s Biggest Housing Bubble Cracks

November 15, 2017

Sweden: The World’s Biggest Housing Bubble Cracks

Sweden’s property bubble is probably the world’s biggest, despite which it gets relatively little coverage in the mainstream financial media – although that might be about to change. Warnings about this bubble are not new. In March 2016, Moody’s issued a very explicit warning that Sweden’s negative interest rates were propagating an unsustainable housing bubble.

The central banks of Switzerland, Denmark and Sweden (all rated Aaa stable) have been among the first to push policy rates into negative territory. A year into this novel experience, Moody’s Investors Service concludes that, from among the three countries, Sweden is most at risk of an – ultimately unsustainable – asset bubble…

“The Riksbank has not been successful in engineering higher inflation, while Sweden’s GDP growth continues to be among the strongest in the advanced economies,” says Kathrin Muehlbronner, a Senior Vice President at Moody’s.

“At the same time, the unintended consequences of the ultra-loose monetary policy are becoming increasingly apparent – in the form of rapidly rising house prices and persistently strong growth in mortgage credit”, adds Ms Muehlbronner. In Moody’s view, these trends will likely continue as interest rates will remain low, raising the risk of a house price bubble, with potentially adverse effects on financial stability as and when house prices reverse trends.

In October 2016, the Riksbank’s Governor, Stefan Ingves, spoke in grave terms to the FT about the impact of negative rates on house prices.

But despite a lack of drama so far, Mr Ingves remains worried about a bad ending due to risks over financial stability.

He said: “It remains an issue because we are mismanaging our housing market. Our housing market isn’t under control, in my view.” The ratio of household debt to disposable income in Sweden is one of the highest in the world at more than 180 per cent and the Riksbank estimates it will continue to rise in the coming years.

…click on the above link to read the rest of the article…

Danish Central Bank Warns Of “Risk Illusion”, Fears “Fire Sale” Plunge In Asset Prices

April 2, 2016

Danish Central Bank Warns Of “Risk Illusion”, Fears “Fire Sale” Plunge In Asset Prices

Having slashed rates below zero and unleashed various rounds of asset-purchases, the Riksbank (Denmark’s central bank) recently warned the rest of the world that “we have reached the limits of monetary policy.” Now, however, Denmark’s Systemic Risk Council has raised the financial system warning level to DEFCON1, warning that low levels of interest rates have led to excessive risk-taking and risk illusion among borrowers and credit institutions… and low market liquidity combijed with sudden shifts in risk perceptions may still lead to significant falls in asset prices and fire sales.

With so many of the world’s nations going NIRP…

At least one of the world’s central banks is worried about it…

The Systemic Risk Council has held its thirteenth meeting.

Sudden changes in risk perception in the financial markets combined with low market liquidity may still lead to significant falls in asset prices and fire sales. Due caution should be exerted in relation to the low level of interest rates, which may lead to excessive risk-taking and risk illusion among borrowers and credit institutions.

There may be systemic risks associated with a sudden change in risk perception in the financial markets combined with low market liquidity

Recent months have seen a partial materialisation of the risk of a rapid and marked fall in asset prices in some of the global financial markets. The large fluctuations in the financial markets in early 2016 have not had systemic consequences in Denmark. Sudden changes in the perception of risk in the financial markets combined with low market liquidity may still lead to significant falls in asset prices and fire sales. The Council’s observation of 30 September 2014 regarding low interest rates and build-up of systemic risks still applies.

…click on the above link to read the rest of the article…

Sweden Minister Says Cashless Society “Not Possible”; Elderly, Disabled People Blamed

March 16, 2016

Sweden Minister Says Cashless Society “Not Possible”; Elderly, Disabled People Blamed

It was just a little over a week ago when we reported that Sweden had begun a 5-year countdown to becoming a cashless utopia.

As The Local reported, “cash transactions today represent no more than two percent of the value of all payments made in Sweden, [and that estimate] will drop to below 0.5 percent within the next five years.”

According to Visa, Swedes use debit cards three times more than other Europeans. Even the homeless accept electronic payments. “The spread of debit cards has had a profound effect even on the street level with fruit and veg traders and even buskers and retailers of homeless magazines accepting cards or electronic payments using the popular Swedish smartphone app Swish,” The Local goes on to note.

As 65-year-old Stefan Wikberg told The New York Times in December, using SMS and mobile card readers effectively helped him climb out of homelessness after losing his IT job. He sells magazines for Situation Stockholm, a charitable organization and his sales rose 30% once he went digital. “Now people can’t get away,” he said. “When they say, ‘I don’t have change,’ I tell them they can pay with card or even by SMS.”

As The Times goes on to write, churches and museums now prefer cashless payments and “at more than half of the branches of the country’s biggest banks, including SEB, Swedbank, Nordea Bank and others, no cash is kept on hand, nor are cash deposits accepted.”

This may all sound rather surreal to some, but for Swedes it’s not only normal, but desirable.  “No one uses cash,” said Hannah Ek, a 23-year-old student at the University of Gothenburg. “I think our generation can live without it.”

…click on the above link to read the rest of the article…

Swiss Bank “Goes There”, Applies Negative Rates To Retail Deposits

November 23, 2015

Swiss Bank “Goes There”, Applies Negative Rates To Retail Deposits

Back in September in “How Mario Draghi Can Force The Swiss National Bank To Go ‘Nuclear On Depositors,” we discussed the implications of the ECB’s (likely) decision to plunge further into NIRP-dom at the bank’s December meeting.

In short, DM central banks – with the possible exception of the Fed which is about to create a rather meaningful policy divergence with its core CB brethren – are in a proverbial race to bottom. It’s a beggar-thy-neighbor monetary policy regime and the more stubborn inflation expectations prove to be, the more aggressive the tit-for-tat easing, as everyone involved scrambles to protect their currency in the face of incessant competitive devaluations on all sides.

As we outlined in great detail in the post linked above, the ECB’s ultra dovish lean has the potential to create a lot of problems for the Riksbank, the Norges Bank, and the SNB.

Sweden is running out of options for a QE program that’s already broken once (see here and here) and although Stefan Ingves will probably tell you there’s more room to cut in the event Draghi moves on the depo rate, the Riksbank is already at -0.35 and the housing bubble has reached epic proportions. Of course staying on hold in the event of an ECB cut means the krona will soar and then, well, there’s goes any hope of hitting the elusive inflation target.

Norway, on the other hand, can’t even begin to think about QE because frankly, they’re too rich. That is, the Norges Bank wouldn’t have enough assets to buy without breaking the market pretty much immediately. That leaves rate cuts and to be sure, at +0.75 (yes, that’s right, not everyone is in NIRP), there’s probably a bit of breathing room there for Oeystein Olsen and he may need it come next month.

…click on the above link to read the rest of the article…

Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in

November 21, 2015

Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in

In uncertain times, “cash is king,” but central bankers are systematically moving to eliminate that option. Is it really about stimulating the economy? Or is there some deeper, darker threat afoot?

Remember those old ads showing a senior couple lounging on a warm beach, captioned “Let your money work for you”? Or the scene in Mary Poppins where young Michael is being advised to put his tuppence in the bank, so that it can compound into “all manner of private enterprise,” including “bonds, chattels, dividends, shares, shipyards, amalgamations . . . .”?

That may still work if you’re a Wall Street banker, but if you’re an ordinary saver with your money in the bank, you may soon be paying the bank to hold your funds rather than the reverse.

Four European central banks – the European Central Bank, the Swiss National Bank, Sweden’s Riksbank, and Denmark’s Nationalbank – have now imposed negative interest rates on the reserves they hold for commercial banks; and discussion has turned to whether it’s time to pass those costs on to consumers. The Bank of Japan and the Federal Reserve are still at ZIRP (Zero Interest Rate Policy), but several Fed officials have also begun calling for NIRP (negative rates).

The stated justification for this move is to stimulate “demand” by forcing consumers to withdraw their money and go shopping with it. When an economy is struggling, it is standard practice for a central bank to cut interest rates, making saving less attractive. This is supposed to boost spending and kick-start an economic recovery.

That is the theory, but central banks have already pushed the prime rate to zero, and still their economies are languishing. To the uninitiated observer, that means the theory is wrong and needs to be scrapped. But not to our intrepid central bankers, who are now experimenting with pushing rates below zero.

…click on the above link to read the rest of the article…

Sweden Launches MOAR QE, As Krugman Paradise Quadruples Down After Dovish Draghi

October 28, 2015

Sweden Launches MOAR QE, As Krugman Paradise Quadruples Down After Dovish Draghi

Over the last six months, we’ve documented Sweden’s descent into the Keynesian Twilight Zone in great detail.

Once upon a time, the Riksbank actually tried to raise rates, only to be lambasted by a furious Paul Krugman who accused the central bank of unnecessarily transforming Sweden from “recovery rockstar” to deflationary deathtrap. Tragically, the Riksbank listened to Krugman and reversed course in 2011. Before you knew it, rates had plunged 35 basis points into NIRP-dom. Unemployment subsequently fell, but the promised lift in inflation didn’t quite pan out. Sweden did, however, get a massive housing bubble for their trouble:

h/t @auaurelija

Obviously, those charts beg the question of why in the world Sweden (or Denmark, or Norway for that matter… or hell, even the US) are trying to contend that there’s no inflationary impulse, but let’s leave that for another day.

As for the Riksbank’s QE program, things began to go awry during the summer when the central bank managed to buy such a large percentage of the stock of government bonds that market depth was affected, causing investors to reconsider the trade off between liquidity and the benefits of frontrunning central bank asset purchases. In short, government bond yields began to rise in what perhaps marked the first instance of QE actually breaking.

But that didn’t stop the Riksbank from doubling down and increasing their asset purchases just a week later.

Since then, it’s been touch and go, with Stefan Ingves looking warily south towards Frankfurt hoping Mario Draghi doesn’t do something that sends the krona soaring on the way to ushering in a deflationary impulse.

Well, that’s exactly what Draghi did last week when the ECB telegraphed either a further depo rate cut, an expansion of PSPP, or both in December. That pretty much sealed the deal for the Riksbank – either cut, expand QE, or concede defeat in the global currency wars.

…click on the above link to read the rest of the article…

Global Easing Bonanza Continues As Norway, Taiwan Cut Rates To Spur Struggling Economies

September 24, 2015

Global Easing Bonanza Continues As Norway, Taiwan Cut Rates To Spur Struggling Economies

On several occasions this year we’ve profiled Norway where the central bank, much like the Riksbank in neighboring Sweden, is walking a fine line between keeping rates low to support the economy (not to mention remain competitive in the global currency wars) and being mindful of the effect low rates have on an overheating housing market.

Like the Riksbank, The Norges Bank is in a tough spot. The property bubble quite clearly needs to be arrested but using monetary policy to rein in the housing market means leaning hawkish in a world of DM doves and that can be exceptionally dangerous especially when your economy is heavily dependent on oil and crude prices are crashing.

Indeed, the pain from low oil prices has become so acute that Norway may ultimately be forced to tap its $900 billion sovereign wealth fund in order to avoid fiscal retrenchment.

Given the above, no one was surprised (well, no one except PhD economists, most of whom got this one wrong) when the Norges Bank cut rates on Thursday, taking the overnight depo rate to a record low of 0.75%. Here’s Bloomberg:

Norway’s central bank cut interest rates to an all-time low and said it may ease policy further as it seeks to rescue an expansion in western Europe’s biggest petroleum producer amid a plunge in oil prices.

The overnight deposit rate was lowered by 25 basis points to 0.75 percent, the Oslo-based central bank said Thursday. The move was forecast by seven of the 17 economists surveyed by Bloomberg, with the remainder expecting no change. The bank forecast its rate may fall as low as 0.59 percent in third quarter of next year. The krone plunged 2 percent against the euro on the news, its biggest drop since August.

“Growth prospects for the Norwegian economy have weakened, and inflation is projected to abate further out,” Governor Oeystein Olsen said in a statement

…click on the above link to read the rest of the article…

 

Sweden Central Joins The NIRP Club: Lowers Interest Rate To -0.1%, Launches QE

February 12, 2015

Sweden Central Joins The NIRP Club: Lowers Interest Rate To -0.1%, Launches QE

It’s a NIRP world and you are either in it, or are determined to lose the currency wars. And hours ago, the world’s oldest central bank, that of Sweden, announced that it too would join its NIRP peers in an attempt to preserve its currency’s fighting power in the global currency wars which make a mockery of what is going on in Ukraine, by lowering the benchmark interest rate to -0.1%, but also launch QE by buying SEK 10 billion of government bonds, thereby making sure that the stock of available debt in private hands is even lower and that central banks monetize even more than merely “all” of all net issuance in 2015.

From the press release:

 There are signs that underlying inflation has bottomed out, but the situation abroad is now more uncertain and this increases the risk that inflation will not rise sufficiently fast. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.10 percentage points, to -0.10 per cent, and to adjust the repo-rate path down somewhat. At the same time, the interest rates on the fine-tuning transactions in the Riksbank’s operational framework for the implementation of monetary policy are being restored to the repo rate +/- 0.10 percentage point. Moreover, the Riksbank will buy government bonds for the sum of SEK 10 billion. These measures and the readiness to do more at short notice underline that the Riksbank’ is safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation.

Economic activity in Sweden strengthening but inflation is too low

…click on the above link to read the rest of the article…

 

 

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