Typography

Ok, another Sweden post. I keep returning to Sweden because no country has gone further down the road to being cash-free. Since all of us seem to be following the same trajectory, we should probably be paying attention. Lucky for us, every two years the Riksbank—Sweden's central bank—-carries out a payments surve y and puts the data up on its website. One of the most interesting questions that is asked is "which of the following payments methods have you used in the last month?" I plotted out some of the data and tweeted the result: Sweden is at the forefront of digital payments. I made this chart with data from the Riksbank payments survey: https://t.co/WTZlFYOl2Y : 1. Debit cards are universal, beating out credit 2. Cash use is plunging but still high 3. Swish adoption is exploding 4. Not much bitcoin usage pic.twitter.com/fal0pfYdMz — JP Koning (@jp_koning) February 20, 2019 What follows are a few observations. Swish beats cash Only 61% of Swedes used cash in the las...

I recently wrote two posts for the Sound Money Project about Swedish monetary innovation. The first is about an effort by the Swedish central bank—the Riksbank—to force retailers to accept cash , and the other is about the e-Krona , a potential Riksbank-issued digital currency. This post covers a third topic. For many years now those of us who are interested in cash, privacy, and payments have had our eye on Swedish banknote demand. The amount of paper kronor in circulation has been declining at a rapid pace. Many commentators are convinced that this is due to the rise of digital payments. Since Sweden is at the vanguard of this trend, it is believed that other nation's will eventually experience similar declines in cash demand too. But I disagree. While digital payments share some of the blame for the obsolescence of paper kronor, the Riksbank is also responsible. The Riksbank betrayed the Swedish cash-using public this decade by embarking on an aggressive note switch.  Had it cho...

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-existen...

 We are more than thirty days into Narendra Modi's demonetization campaign, and while many of the commentators I follow say that it is admirable of Modi to try to reduce the role of  black money (wealth held by tax-evaders and criminals) and increase digital money adoption, most say that demonetization is not the way to go about it. In short, the idea behind Modi's demonetization is to require everyone who owns old 1000 and 500 rupee notes to bring them to a bank before year-end for conversion into new banknotes or to be deposited into an account. By forcing Indians to re-familiarize themselves with dormant accounts, or open new ones, the architects of the plan hope that India's reliance on cash as a medium of exchange will be reduced. Any amounts above the ceiling require proper documentation. Those who own large amounts of cash for undocumented reasons, either because they are evading taxes or engaging in criminal behaviour, will therefore be unable to make the switch, t...

Prime Minister Narendra Modi surprised Indians today by announcing that India's highest denomination notes, the 500 and 1000 rupee, will cease to be legal tender. On first blush, India seems to be enacting Ken Rogoff's idea of cutting down on criminality and tax evasion by phasing out high-denomination notes, which I recently discussed here . But this isn't the case. Rather than removing the Rs. 500, the Reserve Bank of India is replacing it with a new bill. Furthermore, it will also be issuing a Rs. 2000 note, a new highest denomination note. What India is doing is enacting what I'll call an aggressive demonetization . I'd argue that this is an alternative (though not mutually exclusive) idea to Rogoff's. Both schemes are intended to create a logistical nightmare for money launderers; but whereas Rogoff's entails altering the denomination structure of banknotes to get this effect, Modi's aggressive demonetization keeps that structure intact while usin...

The US$5000 banknote, destroyed in 1969 along with the $10,000, $1000, and $500 notes With the publication of his new book The Curse of Cash , economist Ken Rogoff has ignited a big debate over the future of paper money. Both the book, which is packed with information and accessible to a mainstream audience, and Rogoff's series of blog posts are well worth reading, even if you already disagree with his premise that the way the world currently handles cash needs to be modified. The key observation motivating Rogoff's book is this one: with $1.3 trillion worth of U.S. currency in existence, a back-of-the-envelope calculation says that the average four person family should be holding around $16,800 in cash. However, this simply doesn't reflect the personal experience of most Americans. Indeed, 2012 survey data shows that consumers generally report holding just $56 per person, leaving the majority of cash unaccounted for. Nor is this anomaly confined to the U.S. Given $78 bill...

Remember all the hoopla about Japanese buying safety deposit boxes to hold cash in response to the Bank of Japan's decision to set negative rates? Here is the Wall Street Journal: Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash--the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates. Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does. Well, three month's worth of data shows no evidence of unusual cash demand. As the chart below illustrates, the rate at which the Bank of Japan is printing the ¥10,000 note shows no discontinuity from its pre-negative rate rise. In fact, demand for the ¥10,000 is far below what it was in the 1990s, when interest rates were positive. I should remind readers that the Bank of Japan, like any central bank, doesn't determine the quantity of banknotes in circulati...

The Swedes really don't like cash. First, consider that Sweden is the only country in the world that I'm aware of where reliance on paper money is in decline. Second, no country's central bank has produced a nominal deposit rate as negative as Sweden's, for as long. Yet even at -0.85% per year, Swedish banks who own those deposits haven't fled into 0% cash, providing some indication of the degree to which they hold banknotes in disdain. ABBA won't accept paper As the chart below shows, cash outstanding continues to grow in almost every country except Sweden. Japan and Denmark are the only countries that come close to pacing the Swedes, although both nations continue to show incremental growth in demand for banknotes. Even Kenya, where m-pesa has taken hold, shows strong cash demand. Sweden reached "peak-cash" somewhere between 2007 and 2008. The reason for this change of heart is public preferences, not government diktat. The monetary authorities can ...