By Joseph T. Salerno
The Swedish government abetted by its fractional-reserve banking system is moving relentlessly toward a completely cashless economy. Swedish banks have begun removing ATMs even in remote rural areas, and according to Credit Suisse the rule of thumb in Scandinavia is “If you have to pay in cash, something is wrong.”
Since 2009 the average annual value of notes and coins in circulation in Sweden has fallen more than 20 percent from over 100 billion to 80 billion kronor. What is driving this movement to destroy cash is the desire to unleash the Swedish central bank to drive the interest rate down even further into negative territory.
Currently, it stands at -0.35 percent, but the banks have not passed this along to their depositors, because depositors would simply withdraw their cash rather than leave it in banks and watch its amount shrink inexorably toward zero. However, if cash were abolished and bank deposits were the only form of money, well then there would be no limit on negative interest rate policy as banks would be able to pass these negative interest rates onto their depositors without adverse consequences.
With everyone's wages, salaries, dividends etc, paid by direct deposit into his bank account, the only way to escape negative interest rates would be to spend, spend, spend. This, of course, is precisely what the Keynesian economists advising governments and running central banks are aiming at.
As the global economy continues to slide further into recession and with quantitative easing and zero interest-rate policies clearly ineffective, policymakers are desperate to invent another "unorthodox," i.e., radically inflationary, monetary policy. Their vain hope is that a negative interest-rate policy will provide a magical lever to pull anytime they see a need for increased consumer spending. As an added bonus, the abolition of cash eliminates the possibility of bank runs and thus props up the still fragile financial system.
Meanwhile back in Sweden a pro-cash resistance movement is beginning to coalesce and the head of a security industry lobbying group relates, "I’ve heard of people keeping cash in their microwaves because banks won’t accept it."
This article was originally published at The Mises Institute.