Sweden Going Cashless: Pros and Cons of Paper Money

In Sweden, monetary transactions made with physical cash are down to three percent of the national economy.

In most Swedish cities, public buses don't accept cash; tickets are prepaid or purchased with a cell phone text message, reports AP. 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. This looks like the beginning of a global trend; people everywhere are noticing that physical cash is becoming less and less common.

In fact, the news about Sweden right comes on the heels of a new book by Wired columnist David Wolman, called The End of Money: Counterfeiters, Preachers, Techies, Dreamers -- and the Coming Cashless Society. To research his topic, Wolman committed to an entire year without using paper bills. He encountered a few difficulties, but in the end it wasn't so hard.

I imagine you're not paying your rent or your mortgage with piles of singles anymore, let alone your car payments or buying a sweater, he said in an interview with Salon. Most of us are using cash for super small purchases like cigarettes or a Twix bar or coins into a Unicef box at Halloween. So that's where cash is at present.

He added that while plenty of people still depend on cash in their daily lives, such as service workers who receive tips, new advances will find ways around that... eventually. These technologies are coming whether you like it or not.

Don't Be Too Surprised

Sweden is ahead of the game, but the rest of the world may be closer to cashless than you think. Only nine percent of euro zone economic transactions are handled in cash, as are just seven percent of U.S. transactions.

For many, it is difficult to imagine a world where paper bills are gone for good. Call it nostalgia: stacks of stylized paper pop into our minds when we envision commerce, even if that no longer reflects our daily reality. When the word money reaches the ear, wrote Wolman in his book, even Wall Streeters who hawk collateralized debt obligations will, at some level, picture a pile of Benjamins.

But change is coming. The trends suggest that we don't need to enact a monetary policy to get rid of cash; it's happening naturally, and the statistics tell the story. Last year, according to a study by the Federal Reserve, one fifth of American consumers engaged in mobile banking. That percentage is not huge, but the rate of growth is steep. The survey's findings suggest that the use of mobile banking is poised to expand further over the next year, with usage possibly increasing to one out of three mobile phone users by 2013, reported the American Bankers Association.

New money-transferring software products add fuel to the fire. Examples include the new Person-to-Person QuickPay app from Chase, which lets people transfer money to friends instantly and electronically; or the Google Wallet, which allows customers to pay for products in-store with a tap of the smartphone.

Who Needs Paper?

Proponents of cashless economies note that printing physical money is a wastefully expensive process. In fact, some American coins are actually worth less than their cost of production; in 2011, U.S. pennies and nickels both cost more than twice their own value to produce.

Furthermore, cash-based systems come with hidden costs. It's easy for a business to underreport cash earnings, for instance. That means they can evade taxes, leaving other taxpayers -- including private citizens -- to foot the bill. Cash is also good for crime, since it can be exchanged anonymously. This is true for everyone from petty criminals to high-up politicians; it's no coincidence that Sweden has less instances of political graft than more cash-based nations like Italy and Greece, according to AP.

That isn't to say cashless means crimeless; in 2011, Sweden saw about six times as many computerized monetary fraud cases as they did in 2000.

Intangible Troubles

Losing paper money certainly has its downsides. Credit card transactions cost money to process, and banking companies profit by charging fees that can hurt small businesses. Furthermore, as Forbes columnist Alex Knapp posits, going cashless means a lot of supporting infrastructure. You need power. You need data lines open. You need computers. You need readers for credit cards of phones. And most of that infrastructure is out of the merchant's control. They can't control the power, or make sure the cell towers are working or ensure that the bank's computers are operational.

Then there are the psychological costs of paying by credit. In 2011, the Journal of Consumer Research published a study called Do Payment Mechanisms Change the Way Consumers Perceive Products? The short answer is yes.

When credit cards as a payment mechanism are more accessible, consumers attend more to a product's bene?ts relative to the cost aspects of the product. Conversely, when cash as a payment mechanism is more accessible, consumers attend more to cost aspects of the product. In other words, people who buy on credit don't feel the sense of monetary loss as strongly. Those who spend cash, on the other hand, see the paper bills leaving their possession and are likely to spend more carefully.

A Global Issue

Arguments for both sides are easy to find, but in the end it may not matter; the elimination of cash is more of a process than a decision, and it seems we're all sliding in that direction.

We are slowed by one important fact: everyone is in this together. Globally, the need for cash varies by country. Wolman, for instance, had to give up on his self-imposed restrictions when he took a trip to India. Before the wheels of the plane even hit the ground, I thought, 'I gotta get some cash,' he said to Salon. If I want to do anything outside of my hotel in a developing country, I'm gonna need cash. So the experiment had to go on hold for those six days of reporting overseas.

As long as there are paper bills in use somewhere on Earth, cash can't become fully obsolete. So although physical money is increasingly uncommon in developed countries, we've still got a long way to go before it's completely out of the picture.