VoxEU Column Monetary Policy

Withering cash: Sweden seems special rather than ahead of the curve

While the ratio of physical cash to GDP has increased in most countries over the last years, it has fallen dramatically in Sweden. This column argues that rather than being ahead of the curve, a unique combination of events and policy measures have led to the falling cash demand in Sweden. Among those are measures to reduce tax evasion and the informal sector, an aggressive notes changeover, the introduction of an electronic payment app, the withdrawal of central bank subsidies to cash distribution, and a track record of protecting commercial bank money during crises.

The last years have seen an increasing digitisation of economies. Online purchases and digital payments at the point of sales are increasing, smartphones and payment apps are by now commonplace, and people are more and more used to digital solutions. All of these developments have contributed to making digital payments more convenient, cheaper, and a viable substitute for cash. As a conclusion, one might expect that the use of physical cash should have fallen over recent years. 

However, as recently noted by Ashworth and Goodhart (2020) and Shiray and Sugandi (2019), the use of physical cash is increasing almost everywhere (Figure 1a), and usually even more so than economic growth (Figure 1b). 

Two Scandinavian countries, Sweden and Norway, stand out as notable exceptions. The development in Sweden is particularly striking, as the cash in circulation has more than halved over the last decade. The development is also quite notable in daily life as public transport, many shops, and restaurants do not accept cash anymore. Bank offices are typically cash-free and many people neither hold nor use cash at all.

Figure 1 Developments of currency-in-circulation, 2007-2018

(a)        Currency-in-circulation

(b) Currency-in-circulation/GDP 

Note: The graphs show the percentage change over the period 2007 to 2018. In each graph, we display the 19 countries with the lowest development in our sample of 129 countries. 

Understanding this divergent development across countries is important. For one, some countries may want to understand how they can reduce the use of cash. Conversely, some countries may also want to stop a potential marginalisation of cash. Independent of the reason, in order to influence the demand for cash, it is crucial to understand what drives it.

Economic theory and econometric evidence both suggest that the use of cash increases when interest rates fall and GDP increases. A further important driver identified in the literature is the share of elderly in the population. While these factors are consistent with general developments in most countries, they cannot explain the fall in the use of cash in Sweden where the policy rate has fallen while GDP and the share of the elderly have increased.

In order to better understand the divergent development, we analyse data from 129 countries in a panel regression with more than 20 candidate explanatory variables (Armelius et al. 2020). Among the candidates are variables motivated by the fact that cash provides anonymity and leaves no electronic traces. We also included variables that measure trust in commercial banks and variables measuring regulatory quality, access to bank services, mobile phone subscriptions, internet usage, and so on.

In line with earlier studies (e.g. Amromin and Chakravorti 2009, Bech et al. 2018), we find a negative and statistically significant effect of the interest rate, of GDP, and of age on cash demand. For the other variables the results are more mixed. We find no evidence that increased uncertainty increases cash demand. When we limit the sample to OECD countries, higher corruption is associated with higher demand for cash. Furthermore, a bivariate analysis suggests that trust in government and trust in financial institutions are negatively correlated with cash demand.

Our main model specification is able to explain the development in most OECD countries but it fails to explain the development in Sweden (Figure 2). The model fit for Sweden is more than twice as bad than for any other country. This suggests that there is something special about Sweden.

Figure 2 Model fit according to the residual sum of squares

Note: The graph shows the residual sum of squares for the 19 OECD countries in our sample based on the main empirical specification. A lower residual sum of squares value implies a better model fit.

We continue by studying the Swedish case in more depth by identifying several events and policy measures that are – at least in combination – special for Sweden.1 

  • Starting in 2007, the Swedish authorities introduced measures aimed at transferring jobs from the informal to the formal sector and reducing tax evasion. According to the Swedish tax authority, the measures successfully achieved both goals. However, the effects on cash demand are hard to capture empirically as we do not have sector-specific cash demand data, and numerous countries have experienced a general trend of declining underground economies (Engert et al. 2019). 
  • During the period from 2012 to 2017, the Riksbank pursued notes and coins changeovers. A particular feature of these were the short timespan between announcement and the date when the note was to become invalid. Furthermore, the Riksbank applies strict redemption rules.2 Looking at the timing of the changeover, we can see clear drops in cash in circulation during the changeover periods. In Figure 3, we see that the period of 2013, when old 1,000 krona notes were deemed invalid, coincides with a significant drop in the 1,000 krona banknote. The changeover period for the 500 krona banknote (2016 and 2017) displays a substantial decline in the circulation amount of the 500 krona banknote.

Figure 3 Monthly currency-in-circulation in Sweden

Note: The graph shows monthly currency-in-circulation (in billions of SEK) for different denominations in Sweden. The ‘Total’ series corresponds to all banknote denominations available. 

  • In December 2012, a new payment app for smartphones called Swish was introduced in Sweden. The app offers digital real-time payments (person-to-person and person-to-business) between commercial bank accounts of different banks. Its user-friendliness, real-time properties, and broad reach opened up the possibility of digital payments in essentially all areas where cash payments had previously been the only option. About 80% of the adult Swedish population now has the app. 
    Other countries have implemented similar services, but Swish differs from many of these as it covers the whole banking sector and hence has, in principle, universal reach. In many countries, the services appear to be more piecemeal and fragmented. The fact that the Swedish banks were able to come up with a common solution is in line with a long tradition in Sweden. Swedish banks are used to set up jointly owned infrastructure-related companies that provide services for all banks that are compatible with competition among the banks. One example is the digital identification system (BankID) that is used for online banking services by all banks, by Swish, and by public authorities. This is different from the workings of the banking sector in many other countries. 
  • During the 1990s and early 2000s, the Riksbank reduced the number of cash distribution centres and withdrew implicit subsidies. By 2014, the bank only had one banknote distribution centre. This is in contrast to many other countries where central banks usually have a much more prominent role in cash distribution.  
  • Engert et al. (2019) also note that the demand for small denomination notes has fallen in Canada. Thus, the increase in use of cash in Canada is driven by an increase in larger denomination notes. This is likely to be, at least partly, for store-of-value purposes. In Canada and many other countries, there seems to have been an uptick after the global financial crisis. Sweden did not experience a similar uptick. One reason might be the strong trust in the ability and willingness of the Swedish government to protect bank money in times of crisis. Sweden has experienced two systemic banking crises during the last three decades, and public authorities have proven willing and able to protect commercial bank deposits. In other countries which did not experience similar systemic banking crises, there might be weaker trust in commercial bank money and, therefore, higher demand for cash for store-of-value purposes.

In conclusion, the divergent trend in cash usage in Sweden can be attributed to several events and policy measures that had mutually reinforcing effects on cash demand. These include measures to reduce tax evasion and the size of the informal sector, an aggressive notes and coins changeover, the introduction of Swish, the withdrawal of central bank subsidies to cash distribution, and a proven track record of protecting commercial bank money when banks are under stress. While our empirical models do not suggest that other countries will see a similar decline in the use of cash in the near future, the Swedish experience indicates that a combination of reforms making cash less and electronic payments more attractive is able to reduce the demand for cash.

Authors’ note: This column draws largely from Armelius et al. (2020). The views expressed here are solely of the authors and do not represent the views of the Riksbank.


Amromin, G and S Chakravorti (2009), “Whither loose change? The diminishing demand for small-denomination currency”, Journal of Money, Credit and Banking 41(2-3):315–335.

Armelius, H, C A Claussen and A Reslow (2020), “Withering Cash: Is Sweden ahead of the curve or just special?” Sveriges Riksbank Working Paper 393.

Ashworth, J and C A E Goodhart (2020), “Coronavirus panic fuels a surge in cash demand,” VoxEU.org, 17 July.

Bech, M L, U Faruqui, F Ougaard and C Picillo (2018), “Payments are a-changin’ but cash still rules”, BIS Quarterly Review, March.

Engert, W, B Fung and B Segendorf (2019), “A Tale of Two Countries: Cash Demand in Canada and Sweden”, Sveriges Riksbank Working Paper 376.

Shirai, S and E A Sugandi (2019), “The cash hoarding puzzle”, VoxEU.org, 16 October.


1 Several of these have already been mentioned by others, for instance Engert et al. (2019) in their comparative study of Canada and Sweden.

2 Invalid notes can only be redeemed at the Riksbank’s main office in Stockholm for a fee, and only if proper documentation of their origin is presented (in order to avoid money laundering).

3 As most of the reduction in the Riksbank’s cash distribution centers happened before the period we have in our sample, variables capturing central bank involvement in cash distribution may not help much in explaining the fall in cash in Sweden. However, the withdrawal of implicit subsidies might have fostered the private banks willingness to reduce cash usage.

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