Cash still king, but not in Scandinavia

Sweden and Norway move toward the long-predicted cashless society

Photo: Nils S. Aasheim / Norges Bank Norwegian banknotes, though attractive, are being used less and less frequently.

Photo: Nils S. Aasheim / Norges Bank
Norwegian banknotes, though attractive, are being used less and less frequently.

M. Michael Brady
Asker, Norway

The cashless society has long been predicted. Economists theorize that as countries become richer, the amount of cash in circulation first grows in step with expanding wealth and then slows, as banks become more automated and alternatives to cash more commonplace. Finally, cash declines, as cards and apps increasingly facilitate cashless transactions.

The first phase of cash ascent has been apparent in many rich countries, while the second phase of cash decline has yet to happen. Between 2002 and 2014, the amount of cash in circulation in the U.S. doubled while in the Euro zone of Europe it went up by a factor of two and a half, and in Korea it tripled.

So predictions of the cashless society apparently have been premature. There’s much speculation as to why this is so. There are several theories as to why cash remains king in many countries. For most people, cash is convenient and consequently popular for small amount transactions. Even in large, rich countries, there are people with little or no access to alternatives to cash. Moreover, low or negative interest rates may be encouraging people to keep cash on hand rather than deposit it in a bank.

Meanwhile, the affection for cash is declining in Scandinavia. The decline is most noticeable in Sweden. In May 2011, the amount of cash in circulation dropped to less than it had been in 2002. The downward trend continued: by the end of 2014, the population of Sweden used 15% less cash than in 2002.

The trend is less prominent in Norway, where the cash in circulation rose 18% from 2002 to 2014. In the same 13-year period, the country’s GDP rose by 22% and the population by 13%. So despite growth in the economy, more people apparently prefer less cash.

These figures imply that Scandinavia may be well on the way to being cashless. For Sweden, where the central bank has kept the benchmark interest negative at the rate of -0.35% set last July, they suggest the beginning of an intriguing economic experiment of a negative interest rate in a cashless society. With a benchmark interest rate of 0.75% valid until the next revision on December 17, Norway is not far behind.

Further reading: “Money for everything,” The Economist, October 3, 2015, link:

This article originally appeared in the Nov. 27, 2015, issue of the Norwegian American Weekly.

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