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3 April 2018updated 24 Jun 2021 12:24pm

How Sweden and the UK are leading the global shift towards a cashless economy

Sweden is forecast to become cashless by 2030.

By George Eaton

In the summer of 2015, as David Cameron cast around for ideas for his Conservative conference speech, an ambitious proposal caught his eye: a cashless economy. Former No 10 aide Daniel Korski, who developed the policy, suggested setting a target of eliminating hard currency in Britain by 2020.

“The prime minister eventually said, ‘I like this but I don’t think it’s for conference,’” Korski, now the chief executive of Public, a venture capital firm, recalled when we spoke. “But the real resistance was the Treasury and the then chancellor [George Osborne]. There was real concern about where this would go politically.”

In his recent Spring Statement, Philip Hammond, Osborne’s successor, announced a consultation on the related policy of scrapping 1p and 2p coins. Copper coins now cost more to produce than they are worth and 60 per cent are typically used in just one transaction before being stored at home or even thrown away. But confronted by an incipient “save the penny” campaign, the government retreated the day after Hammond’s announcement.

The idea of a cashless economy can appear utopian, the kind of “blue-sky” policy beloved of Cameron’s erstwhile adviser Steve Hilton. Yet in Sweden this apparent fantasy is close to becoming a reality. Cash transactions account for only 1.4 per cent of the value of all payments and the country is forecast to become cashless by 2030. Market traders, churches and homeless magazine vendors all accept card and phone payments. More than 900 of Sweden’s 1,600 bank branches no longer take cash deposits. The country’s Riksbank, the world’s oldest central bank, is considering launching a national cryptocurrency: the e-krona (inflation-ravaged Venezuela recently created the oil-backed petro).

Even without government support, the UK has become one of the world’s most cashless societies: cash accounts for only 3.9 per cent of all payments by value (compared to 10.7 per cent in the eurozone and 8.1 per cent in the US). For Korski, this is an unambiguously positive trend. One of the benefits of a cashless system, he told Cameron, is significantly reduced crime. In his 2016 book, The Curse of Cash, the Harvard economist Kenneth Rogoff disparages paper currency for aiding tax evasion, theft, corruption, terrorism, the drugs trade, human trafficking and the rest of a burgeoning black economy. Though a digital system creates new forms of crime, illegal activity becomes easier to trace.

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Other benefits include higher economic productivity. “We’re still struggling to measure the productivity gain of the near-disappearance of high street travel agents,” Korski told me. In 2015, the Bank of England’s chief economist, Andrew Haldane, argued that a cashless system would aid monetary policy by allowing negative interest rates to be imposed in times of economic stagnation. At present, if charged by banks for storing money, consumers are able to hoard cash.

Beyond purely conservative objections, critics warn that a cashless economy would further marginalise the elderly and the poor (who disproportionately use cash). Korski described this as “incredibly insulting” to pensioners, who are increasingly likely to use cards and mobile phones. “You have to have smart policy for the majority and then various schemes to support the minority.”

The poor, Korski argued, were currently penalised by their reliance on cash, which leaves them unable to access digital discounts and services. A cashless system would also make them less vulnerable to theft and to exploitative employers.

Even Rogoff concedes that paper currency will still be needed as a backstop in case of disruptions such as power outages. He is for a “less-cash” economy, rather than a cashless one.

Yet a transformation is underway: all that is solid is melting into air. Thomas More’s Utopia depicted an imaginary republic in which “the use as well as the desire of money” had been “extinguished”. But though a moneyless society is still a fantasy, a cashless one is not. 

This article appears in the 21 Mar 2018 issue of the New Statesman, Easter special