Going Cashless, Led by Sweden

Stefan Ingves is the governor of Sveriges Riksbank, the central bank of Sweden, described as the world’s oldest central bank.

By Stefan Ingves
STOCKHOLM, Aug 3 2018 (IPS)

Sweden is rapidly moving away from cash. Demand for cash has dropped by more than 50 percent over the past decade as a growing number of people rely on debit cards or a mobile phone application, Swish, which enables real-time payments between individuals.

More than half of all bank branches no longer handle cash. Seven out of ten consumers say they can manage without cash, while half of all merchants expect to stop accepting cash by 2025 (Arvidsson, Hedman, and Segendorf 2018). And cash now accounts for just 13 percent of payments in stores, according to a study of payment habits in Sweden (Riksbank 2018).

Stefan Ingves

Digital solutions for large payments between banks have existed for some time; the novelty is that they have filtered down to individuals making small payments. And my country isn’t alone in this regard.

In several Asian and African countries—for example, India, Pakistan, Kenya, and Tanzania—paying by mobile phone instead of cards or cash is commonplace.

Given that the role of a central bank is to manage the money supply, these developments potentially have wide-ranging consequences. Are central banks needed as issuers of a means of payment in a modern digital payments market?

Are banknotes and coins the only means of payment for retail payments that should be supplied by a central bank? Is there a risk of future concentration in the payments market infrastructure that central banks should be monitoring?

In Sweden, clearing and transfers between accounts are concentrated in one system, Bankgirot. Once the payments market infrastructure is in place, the marginal costs for payments are low and positive externalities are present. What do we mean by “positive externalities”?

A classic example is the telephone. Having the first telephone is not very valuable, as there would be no one to call. However, as more people eventually connect to the telephone network, the value of the phone increases.

The same is true for the payments market—the value of being connected to a payments system increases as more people join. Moreover, payments can also be regarded as collective utilities.

Considering this, my view is that the state does indeed have a role to fill in the payments market—namely, to regulate or provide the infrastructure needed to ensure smooth functioning and robustness.

Citizens can expect a payments market to meet a few basic requirements. First, its services should be broadly available. Second, its infrastructure should be safe and secure. Sellers and buyers should be convinced that the payment order will be carried out—a necessary condition for people to be willing to use the system. Third, it should be efficient: payments should be settled fast, at the lowest possible cost, and the system should be perceived as simple and easy to use.

Do we fulfill these requirements? I am becoming increasingly uncertain whether we can respond with an unequivocal yes.

If banknotes and coins have had their day, then in the near future, the general public will no longer have access to a state-guaranteed means of payment, and the private sector will to a greater extent control accessibility, technological developments, and pricing of the available payment methods.

It is difficult to say at present what consequences this might have, but it will likely further limit financial access for groups in society that currently lack any means of payment other than cash. Competition and redundancy in the payments infrastructure will likely be reduced if the state is no longer a participant. Today, cash has a natural place as the only legal tender. But in a cashless society, what would legal tender mean?

In this regard, one might ask whether central banks should start issuing digital currency to the public. This is a complex issue and one central banks will likely struggle with for years to come. I approach the question as a practical, not a hypothetical, matter.

I am convinced that within 10 years we will almost exclusively be paying digitally, both in Sweden and in many parts of the world. Even today, young people, at least in Sweden, use practically no cash at all.

This demographic dimension is also why I believe that cash’s decline can be neither stopped nor reversed. While the Nordic countries are at the forefront, we are not alone. It is interesting to see how quickly the Chinese payments market, for instance, is changing.

And then there is the emergence of crypto assets. I do not consider these so-called currencies to be money, as they do not fulfill the three essential functions of money—to serve as a means of payment, a unit of account, and a store of value. This view is shared by most of my colleagues.

Crypto assets’ main contribution is to show that financial infrastructure can be built in a new way with blockchain technology, smart contracts, and crypto solutions. Although the new technology is interesting and can probably create value added in the long run, it is important that central banks make it clear that cryptocurrencies are generally not currencies but rather assets and high-risk investments.

The clearer we are in communicating this, the greater the chance that we can prevent unnecessary bubbles from arising in the future. We may also want to review the need for regulatory frameworks and supervision for this relatively new phenomenon.

It is worth mentioning that digitalization, technical improvements, and globalization are positive developments that increase our collective economic welfare. We can only speculate on what new payments services may be developed in the future. But there are several challenges ahead.

One key issue we face is whether central banks can stop supplying a state-guaranteed means of payment to the general public. Another is whether the infrastructure for retail payments should be transferred to a purely private market. The state cannot entirely withdraw from its social responsibility in these areas. But exactly what its new role will become remains to be seen.

The link to the original article follows:

Land Degradation: A Triple Threat in Africa

A rice farmer in Northern Ghana during better days. Croplands that were once fertile in northern Ghana are now unproductive, which has led to decreased incomes while water sources are drying up due to prolonged droughts. Credit: Isaiah Esipisu/IPS

By Tharanga Yakupitiyage

Sustainability, stability, and security—the three overlapping issues are an increasing concern among many especially in Africa where land degradation is displacing citizens and livelihoods.

African ministers and United Nations officials convened at the U.N. as part of the Initiative on Sustainability, Stability, and Security (3S), which aims to address migration and instability caused by land degradation across the continent.

“We need to take ownership of our responsibility,” said minister of environment and sustainable development of Senegal Mame Thierno Dieng. The west African nation was one of the countries that helped launch the 3S initiative.

Among its objectives, 3S hopes to stabilise “at risk” areas by creating new, green jobs for the most vulnerable communities through investments on land rehabilitation and sustainable land management.

Without any such action, the dangers for communities are undeniable.

Globally, 80 percent of land degradation is caused by agriculture. Since 1950, 65 percent of Africa’s cropland, which millions depend on, has been affected by land degradation by mining, poor farming practices, and illegal logging.

Meanwhile, an estimated 375 million young Africans are estimated to enter the job market within the next 15 years. Of this population, 200 million will live in rural areas.

As resource-based sectors such as agriculture account for 80 percent of employment, young people will be left without a healthy environment to survive on. According to 3S, this could lead to conflict over natural resources, instability caused by the lack of income-generating opportunities, and increased exposure to extremist groups.

Ghana, renowned for its tropical forests and cocoa farms, is already seeing this scenario play out.

Approximately 35 percent of the west African country’s land is under threat of desertification especially in the north where land degradation and climate change have exacerbated poverty.

Croplands that were once fertile in northern Ghana are now unproductive, which has led to decreased incomes while water sources are drying up due to prolonged droughts.

Such losses have forced northern residents to migrate to the southern region of the country where they live in “highly deplorable” conditions, Ghana’s deputy-minister of environment, science, technology, and innovation Patricia Appiagyei told IPS.

“It is about time that we find ways of ensuring we neutralise the high rate of degradation,” she said.

“[3S] is an initiative we are very passionate about and we believe that we need to join to address these issues because land degradation and desertification issues is not just affecting the land but it is also affecting water, energy, food baskets, and livelihoods of the people who live within those communities,” Appiagyei continued.

While Ghana has begun investing in agricultural development in the north, conflicts are beginning to escalate between farmers and herders who are losing grazing land for their cattle.

The Gambia is facing similar challenges, with almost 80 percent of its woodlands degraded in alongside a rapid decrease in the productivity of its cropland.

As 64 percent of its population are young people, Gambians have been forced to move to urban areas or abroad for greener pastures.

Many Gambians have also been returning which is proving to be an additional challenge, said minister of environment, climate change, and natural resources Lamin Dibba to IPS.

“There was a particular month that there were about 400 people returning from abroad. This is very worrying for the fact that when they stay long without any livelihood support system, this can bring a lot of social disorder,” he said.

In an effort to avoid such instability, the Gambia hopes to create 25,000 green jobs for youth in their communities as well as returning migrants in the fields of agriculture, tourism, and conservation.

To achieve this, education is a crucial component, both Appiagyei and Dibba said.

“[We need] to reach out to the communities to explain to them what is climate change, what are the causes, what are the likely impacts…this is why we call it integrated—we want to look at all aspects of people’s livelihoods,” Dibba said.

Supported by the Great Green Wall (GGW) initiative, the Gambia is implementing an education project targeting schools about GGW and land restoration methods.

Appiagyei noted the importance of including farmers, especially women, in such initiatives through education on agricultural practices and new technologies.

“They are currently suffering from the agricultural practices they are undertaking and the weather doesn’t really help…we need to ensure people have jobs within their communities and environment. We want them to stay on their farms and farm,” she said.

While Ghana is considering a lift on a ban on small-scale mining, which has impacted swathes of forests and water bodies, Appiagyei told IPS that sustainable land management comes first.

“We are thinking about lifting the ban, but not until we are able to improve on land management practices and apply the right legislation. Not until we are convinced that we have the right measures to curb the activities of small-scale illegal mining,” she said.

But no one of this will be possible without meetings and support from the international level.

“We want to ensure these projects become a reality,” said Dibba.