The government and central bank of Norway, a predominantly cashless economy in Europe, have made a significant change in their stance on cash payments. Only 3% of Norwegians used cash in their latest purchase in a physical shop, according to a recent central bank survey. However, a new amendment to Norway’s Financial Contracts Act that came into effect on October 1 aims to enhance citizens’ rights to pay with cash in retail settings, potentially reversing the trend of cash abandonment.
The amendment clarifies customers’ right to pay with legal tender in retail establishments. Businesses must offer the option to pay with cash if other payment solutions are available, and provide change if needed. Failure to comply could result in financial penalties for businesses. The legislation is intended to support the estimated 600,000 Norwegians who struggle with digital payments and have been excluded from the retail economy, promoting genuine financial inclusion.
Moreover, the change in law also aims to strengthen the country’s financial resilience by ensuring that cash remains an “always on” payment option. Cash is seen as vital in situations such as prolonged power outages, system failures, or digital attacks against payment systems and banks. The Norwegian Directorate for Civil Protection recommends keeping some cash on hand at all times in case digital payment systems fail.
While some retailers are not enthusiastic about the shift back to cash payments due to associated costs, particularly in handling and processing cash, many Norwegians, especially elderly citizens, welcome the change. The amendment is a significant step towards ensuring financial inclusion and resilience in Norway’s economy. A few years ago, a Finnish central bank official issued a message that has now been echoed by Päivi Heikkinen, the Head of the Payment Systems Department and Chief Cashier at the Bank of Finland. In October 2022, Heikkinen warned households in Finland to ensure they have some cash on hand in case the country’s payments system experiences disruptions. This sentiment aligns with the concerns raised by Sweden’s Riksbank, the world’s oldest central bank, about the fragility of cashless economies. The Riksbank has repeatedly highlighted the vulnerabilities of digital payment systems to cyber attacks and power disruptions, emphasizing the importance of cash as a resilient payment method. The recent wave of digital payment outages in various countries further underscores the risks associated with relying solely on digital transactions. As a result, a growing number of European countries, including Switzerland, Austria, and Slovakia, have passed or proposed legislation to protect citizens’ right to use cash. In Sweden, the Riksbank has urged the government to take urgent measures to strengthen cash’s role in the payment system, emphasizing the need for legislation that makes it harder for retail outlets to reject cash payments. Ultimately, central banks in both Sweden and Norway are now faced with the challenge of mitigating the unintended consequences of promoting cashless societies.
It will be quite a challenge for them considering that a significant portion of their countries’ cash infrastructure, such as private banks’ branch networks, ATMs, and distribution services provided by cash handling companies, has been neglected in recent years.
Furthermore, it remains to be seen if enough citizens in Sweden and Norway are willing to embrace cash again if it becomes more readily available and user-friendly. Despite a slight increase in demand for cash in Norway over the past year, with more ATM withdrawals, it is uncertain whether this trend is sustainable. The advancement of payment technologies has led most citizens in these countries to prefer the speed and convenience of digital payments. However, this shift was also influenced by external factors.
In 2016, Swedish commercial banks made 60% of their branches cashless, making it challenging for individuals and businesses to access and deposit cash, thereby accelerating the adoption of digital payments. The Riksbank also played a role by removing many large denomination notes from circulation. Now, efforts are being made to slow down or stop Sweden’s progression towards a cashless society.
Time is of the essence, as the central bank warns that urgent measures need to be taken to strengthen Sweden’s cash infrastructure before it’s too late:
“There are already issues with cash handling that require immediate legislative action to protect the use of cash and access to cash services. Delaying action until cash is further phased out may result in a situation where it’s too late to intervene, or operators may need to reinvest in equipment and systems.”
Given that Norway and Sweden have been at the forefront of reducing cash usage in their economies, the fact that they are now highlighting the risks and vulnerabilities of a completely cashless economy, as well as the urgent need to preserve access to and use of cash, should be a concern not only within their borders but also globally.
Loading…