E Riksbank: Cash Must Be A Protected Legal Right For Good Reason

Sweden's Riksbank says that cash must be a protected legal right. The central bank of Sweden fears that people will be locked out of the banking system, something I have warned could happen. It is nice to hear it from a central bank, though. A discussion of the shadow economy follows at the end of this article. I am sure that the contribution to GDP by the shadow economy, both legal and illegal, is massive. I am sure that this fact is not lost on central bankers.

Now I can point to the Riksbank as my friends and relatives scoff, and say, see, I told you so. I have been telling them that the existence of cash is important and the talk of banishing it is dangerous and cannot be ignored!

And I have been speaking to the subject of privacy, as all transactions will be tracked in a cashless society. Apparently that is a concern of the Riksbank as well.

Considering that the central bank of Sweden is at the forefront of negative interest on bank reserves, pushing inflation higher for the last three months in a row, it is astounding to me that it wants to protect cash. Most bankers who advocate negative interest on reserves also advocate a cashless society, fearing bank runs. And that could happen if the plunge into negativity is deep enough to be passed on to consumers, and if those consumers believe that those costs are harder to bear than the loss of convenience in maintaining the account.

So, this is a significant political statement on the part of the Riksbank, to seek protection for cash. The bank pointed out that there are parts of the country and situations that require cash. Now, it appears that the bank looks at this as a temporary situation as the development of alternative means of payment become widespread:

This development is positive in itself, but needs to take place at a rate that does not create problems for certain groups or exclude anyone from the payment market, If the banks continue to set the pace, there is a high risk that the possibility of using cash will disappear before alternative means of payment have become widespread and generally accepted. To restrain this development, the Riksdag (the Swedish parliament) should introduce a clear obligation for the banks to provide basic functions that meet customers’ needs.

Obviously, one "situation" that would have to be addressed is the donation of cash to individuals. I am not the only one who gives a small amount to people hurting in this US economy. They are on the street corners of Las Vegas and other cities. If they had a smart phone to transact payments, I am wondering what credibility would that display that they are really that poor? And how would they afford the smart phone in the first place?

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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Bill Myers 3 years ago Member's comment

Fascinating, thanks for sharing.