Riksbank study questions status of cash as legal tender

The Swedish legislator should consider abolishing the unique status of cash as legal tender, according to researchers at Sveriges Riksbank, who argue that consumers would benefit from more "neutral" legislation.

Under the existing Sveriges Riksbank Act, banknotes and coins issued by the Riksbank are classified as legal tender, which means "everyone is obliged to accept [them] as payment".

With the advent of other forms of payments, however, cash use in many developed and developing countries is declining – a process that has accelerated in Sweden in recent years.

Today, around one-quarter of payments at points of sale are made in cash, down from one-third a decade ago, the Riksbank estimates in a study published today.

The study also shows the value of cash in circulation has declined in absolute terms for the past couple of years, "something that is unique for Sweden".

The authors, Björn Segendorf and Anna Wilbe of the Riksbank's financial stability department, question whether such trends undermine the status of cash as legal tender.

"The risk of being locked in to certain, perhaps more costly, methods of payment," Segendorf and Wilbe argue, would be reduced with "neutral legislation" that enables market participants to adopt the payment methods of their choosing.

They also contend that the absence of legal tender would have "little or no effect on the efficiency and fragmentation of the payments market" since the market has established several "smoothly functioning" new payments standards.

According to Segendorf and Wilbe, the people who would be hardest hit by such a change – those without access to methods of payment other than cash – are small and can likely be "better helped through targeted measures".

As cash is still common, the authors say, there is "no immediate need to abolish its unique status as legal tender" but "it would be wise if the legislator begins to investigate now whether a new and technology-neutral regulation is needed".