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Sweden, Honduras, and the Cashless Society

+ Brandon Fuller

A recent AP report recounts Sweden’s shift toward a cashless economy:

In most Swedish cities, public buses don’t accept cash; tickets are prepaid or purchased with a cell phone text message. A small but growing number of businesses only take cards, and some bank offices — which make money on electronic transactions — have stopped handling cash altogether.

Bills and coins represent only 3 percent of Sweden’s economy, compared to an average of 9 percent in the eurozone and 7 percent in the U.S., according to the Bank for International Settlements, an umbrella organization for the world’s central banks.

For ABBA’s Bjoern Ulvaeus, the move away from cash is fundamentally a matter of security:

After his son was robbed for the third time he started advocating a faster transition to a fully digital economy, if only to make life harder for thieves.

The pop star’s involvement has given the story legs, but he might be on to something:

The Swedish Bankers’ Association says the shrinkage of the cash economy is already making an impact in crime statistics. The number of bank robberies in Sweden plunged from 110 in 2008 to 16 in 2011 — the lowest level since it started keeping records 30 years ago. It says robberies of security transports are also down.

Analysis in today’s Financial Times highlights several other costs of cash.  For example, the EU banned the €500 note in 2010 after discovering that it was almost exclusively used by money-launderers shifting cash for criminal gangs. Also from the FT:

A 2008 study by the McKinsey consultancy estimated that in Europe €60bn-€100bn annually is spent on processing cash payments, a figure that includes the production of notes and coins, transport and security.

A move to exclusively electronic payments would presumably reduce such costs and make transactions for illicit goods and services more difficult. As such, a cashless society may hold particular appeal for places in the developing world where crime and corruption present much larger challenges to security and the rule of law. As the AP and FT articles suggest, the technology may be pushing societies toward a cashless frontier but it’s also worth considering whether certain jurisdictions could benefit from a legislative nudge.

In planning for the development of a new city in a special development region, the Honduran government took explicit legal steps that give the city the authority to limit the use of cash, including the possibility of an outright ban. The hope is that the absolute or near absence of cash will cut down on the bribery and drug trafficking that are now pervasive in the rest of the country, both by taking cash out of the equation and by making suspect transactions easier to track electronically.

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