Going Cashless: Central Banks and Digital Currencies — IMF F&D Magazine (Point of View)
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- Authors: STEFAN INGVES
- Published: June 1, 2018
Current trends in Sweden and internationally
- Sweden is rapidly moving away from cash: demand for cash has dropped by more than 50 percent over the past decade.
- More than half of all bank branches no longer handle cash.
- Seven out of ten consumers say they can manage without cash.
- Half of all merchants expect to stop accepting cash by 2025 (Arvidsson, Hedman, and Segendorf 2018).
- Cash now accounts for just 13 percent of payments in stores (Riksbank 2018).
- Real-time mobile payments for individuals (Swish) have become widespread in Sweden.
- Similar mobile-payment adoption exists in several Asian and African countries, including India, Pakistan, Kenya, and Tanzania.
- The Chinese payments market is changing quickly.
Implications for central banks and the payments infrastructure
- Longstanding digital solutions for large interbank payments have now filtered down to individual retail payments.
- Concentration risk: clearing and transfers in Sweden are concentrated in one system, Bankgirot.
- Network effects and positive externalities: the value of a payments system increases as more users connect, making payments akin to collective utilities.
- Basic requirements citizens expect from a payments market:
- Broad availability of services.
- Safe and secure infrastructure with reliable settlement of payment orders.
- Efficiency: fast settlement, lowest possible cost, and perceived simplicity and ease of use.
- Concern: uncertainty whether these requirements can continue to be met if cash declines.
Risks and social considerations
- If banknotes and coins become uncommon, the public may lose access to a state-guaranteed means of payment.
- Private-sector dominance could control accessibility, technological developments, and pricing of payment methods.
- Potential consequences include further limiting financial access for groups that currently rely solely on cash.
- Reduced competition and redundancy in payments infrastructure if the state withdraws.
- Legal tender: cash currently has a natural place as the only legal tender; the meaning of legal tender in a cashless society is unclear.
Central bank digital currency (CBDC) and crypto assets
- Question posed: should central banks start issuing digital currency to the public? The issue is complex and will be debated for years.
- Practical expectations: "I am convinced that within 10 years we will almost exclusively be paying digitally, both in Sweden and in many parts of the world."
- Demographic driver: young people in Sweden already use practically no cash.
- Crypto assets assessment:
- Not considered money by the author because they do not fulfill the three essential functions of money—to serve as a means of payment, a unit of account, and a store of value.
- Crypto assets mainly demonstrate that financial infrastructure can be built in new ways (blockchain, smart contracts).
- They are characterized as assets and high-risk investments; clear communication from central banks is important to help prevent unnecessary bubbles.
- Regulatory frameworks and supervision for crypto assets may need review.
Policy stance and open questions
- The state has a role to regulate or provide payments infrastructure to ensure smooth functioning and robustness.
- The state cannot entirely withdraw from its social responsibility in payments and access.
- Open questions for policymaking:
- Whether central banks should continue supplying a state-guaranteed means of payment.
- Whether retail payments infrastructure should be transferred to a purely private market.
- What the state's new role should be in a predominantly digital payments environment.
Source: Going Cashless: Central Banks and Digital Currencies — Stefan Ingves, IMF F&D Magazine, June 2018.
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