It used to be that central banks were constrained in setting monetary policy by the zero lower bound. Nominal interest rates cannot fall below zero because people would just hold cash under their mattresses instead.
Of course, if the existence of cash is getting in the way of monetary policy why not just eliminate cash completely?
Sweden is the first country to experiment with negative interest rates in a cashless society.
The Swedish central bank held its benchmark interest rate at -0.35% today, the level it has been at since July.
Although retail banks have yet to pass on that negative to rate to Swedish consumers, the longer it’s held there the more financial pressure there is for banks to pass the costs onto their customers. That’s a problem because Sweden is the closest country on the planet to becoming an all-electronic cashless society.
Remember, Sweden is the place where, if you use too much cash, banks call the police because they think you might be a terrorist or a criminal. Swedish banks have started removing cash ATM machines from rural areas, annoying old people and farmers. Credit Suisse says the rule of thumb in Scandinavia is: “If you have to pay in cash, something is wrong.”
Ironically, this latest episode of the war on cash has benefitted one sector of the economy: microwaves.
A resistance is forming, and some people are protesting the impending extinction of cash. Björn Eriksson, former head of Sweden’s national police and now head of Säkerhetsbranschen, a lobbying group for the security industry, told The Local, “I’ve heard of people keeping cash in their microwaves because banks won’t accept it.”
Let´s hope that using a microwave doesn´t come to be seen as a suspicious act warranting a call to the police in Sweden.
