Is Switzerland About To Become First Country To Outlaw A Cashless Society?

Authored by Nick Corbishley via NakedCapitalism.com,

As in neighboring Germany and Austria, cash is still king in Switzerland albeit a much diminished one. But the Swiss will soon have the chance to vote on whether to preserve notes and coins indefinitely.  

This is a rare positive news story that, perhaps unsurprisingly, has received next to no attention beyond Swiss borders. As far as I can tell, none of the legacy media in the US, UK, France, Germany or Spain have even bothered to cover the story. Indeed, it only registered on my radar a couple of days ago, over a week after the story initially broke, because an acquaintance of mine with family in Switzerland told me about it.

So, here’s the basic thrust of the story: At the beginning of last week, a Swiss pressure group with libertarian leanings called the Swiss Freedom Movement (FBS) announced it had collected enough signatures (111,000) to trigger a national vote on preserving cash for posterity. If passed, the initiative would require the federal government to ensure that coins and banknotes are always available in sufficient quantities. What’s more, any attempt to replace the Swiss Franc with another currency — quite possibly a reference to a central bank digital currency — would also have to be put to popular vote.

From Reuters:

Swiss citizens will get the chance to try to ensure their economy never becomes cashless, a pressure group said, after collecting enough signatures on Monday to trigger a popular vote on the issue.

The Free Switzerland Movement (FBS) says cash is playing a shrinking role in many economies, as electronic payments become the default for transactions in increasingly digitised societies, making it easier for the state to monitor its citizens’ actions.

It wants a clause added to Switzerland’s currency law, which governs how the central bank and government manage the money supply, stipulating that a “sufficient quantity” of banknotes or coins must always remain in circulation…

Under Switzerland’s system of direct democracy, the proposal would become law if approved by voters, though government and parliament would decide how that law was implemented.

FBS says cash is playing a diminishing role in many economies, including Switzerland, as digital payment methods come to the fore, making it easier for the State and central bank to track citizens’ behavior.

“It is clear that… getting rid of cash not only touches on issues of transparency, simplicity or security… but also carries a huge danger of totalitarian surveillance,” FBS president Richard Koller said on the group’s website.

Cash Still King in Switzerland, Albeit a Much Diminished One

As in neighboring Germany and Austria, cash is still king in Switzerland, though its role has shrunk significantly in recent years. According to the findings of the Swiss National Bank’s last survey of people’s spending habits, conducted in the autumn of 2020, 97% of Swiss citizens still keep cash in their wallets or at home to cover day-to-day expenses, which is significantly higher than most countries.

Forty percent of transactions were still being made using cash, which is also higher than many of Switzerland’s more cashless European neighbors, such as the UK (around 15%), Sweden (less than 10%) and Norway (3-4%, the lowest level of cash usage in the world). But that was down from around 70% three years earlier. What’s more, in terms of transaction value, the debit card recently overtook cash as the payment method with the highest share for non-recurring payments.

“The survey results show that, in terms of the number of payments made, cash continues to be the payment instrument most frequently used by the Swiss population,” Fritz Zurbrugge, then-vice-president of the Swiss National Bank’s governing board, said. “Compared with 2017, however, when the first payment methods survey was carried out, its usage share has dropped significantly. The coronavirus pandemic has given additional impetus to this shift from cash to non-cash payment methods”.

As readers are well aware, the pandemic rapidly intensified preexisting forces, mainly due to unfounded fears that cash could exacerbate the spread of COVID. Those fears were stoked and magnified by mainstream media and seized upon by certain retailers (such as the British supermarket Tesco) to justify encouraging all customers to avoid making cash payments. Even today, with most public health measures (at least of the non-pharmaceutical variety) consigned to the back burner, retailers in some countries continue to reject cash.

Three Unique Benefits of Cash, According to SNB

The date for the referendum on the cash initiative is yet to be set. A video report on the issue by Swiss Info emphasized that none of Switzerland’s main political parties support the initiative. It also underscored the FSB’s libertarian credentials while likening the cash initiative to the failed sovereign money initiative of June 2018, also known as Vollgeld, which sought to put an end to fractional reserve banking by including the creation of scriptural money in the legal mandate of the Swiss National Bank (SNB).

The SNB opposed that referendum. It is not yet clear what it makes of the cash initiative. Officially speaking, the central bank has no preference as to whether people pay with cash or digital alternatives. Freedom of choice is what matters. In a speech last November titled “Popular, But Under Pressure – Cash in the Digital Age”, Martin Schlegel, vice chairman of the SNB’s governing board, highlighted three key advantages cash has over digital payments:

• First, cash makes managing your money clear and simple. It is easier to keep a firm grasp on your spending with notes and coins. You only have to open your wallet to see if you can afford additional expenses. It is with good reason that parents usually give children their pocket money in cash. By contrast, when you hold a plastic card up to a payment terminal, all you see is an amount that will be debited from your account at some point in the future.

• Second, thanks to its simplicity of use, cash allows everyone to participate in the economy in social life. You do not need an account or a mobile phone to pay with coins and banknotes, nor do you need an affinity with digital technology.

• Third, when paying by cash, you do not need to provide personal details such as your name or card number. With electronic payments, however, information about the persons making the payment and their payment behaviour is stored.

To ensure that people can continue to enjoy these benefits, Schlegel said the SNB must help preserve Switzerland’s cash infrastructure, which includes cash processing operators and commercial banks. It also means ensuring that shops continue to accept notes and coins for purchases.

But before we get ahead of ourselves, in Switzerland the outcome of a referendum does not automatically become law. As NC reader Irrational has kindly pointed out, there there are plenty of instances where the Swiss government, parliament, courts and official agencies have delayed and/or watered down undesirable legislation approved by the public.

Norway’s “Cash Crisis”

In some countries that are further along the road to a fully cashless existence, central banks and governments are already taking steps to preserve cash services. They include Norway. In a 2021 survey, the country’s central bank, Norges Bank, found that many of the country’s commercial banks were no longer accepting responsibility for providing cash services. This became a major exacerbating factor in Norway’s so-called “cash crisis” of May 2022, when card terminals across the nation went down for hours, leaving millions of people unable to transact.

That crisis underscored the ongoing importance of cash, which Schlegel describes as “particularly
crisis-proof”:

You can still pay with banknotes even when a card terminal has stopped working, when your mobile phone has no reception or when there is no electricity. Cash therefore serves as an important back-up in the event of local – or even widespread – interruptions to card or app payments.

Norway’s “cash crisis” appears to have galvanized both the government and Norges Bank to shore up cash services and the right to pay with banknotes and coins. In September 2022, the Ministry of Justice and Emergency Preparedness submitted a proposal for changes to the Act to strengthen the right to pay cash, with physical businesses being required to accept it and provisions in place to consider individual cases for other services.

But at the same time, most central banks, including Norges Bank and the SNB, are also exploring the possibility of launching their own central bank digital currencies, or CBDCs, in the not-too-distant future. While most central banks have repeatedly said that CBDCs, once launched, will co-exist alongside cash, there are no guarantees that that is what will happen, or under what sort of conditions.

In 2019, a blog post on the IMF’s website, titled “Cashing In: How to Make Negative Interest Rates Work,” based on an IMF staff study, posited setting a dual currency system in which cash would gradually depreciate against e-money, thus allowing the central bank to set “as negative an interest as necessary for countering a recession, without triggering any large-scale substitutions into cash.”

As the authors of the post themselves note, implementing such a system “would require important modifications of the financial and legal system” in each country. “In particular,” they go on, “fundamental questions pertaining to monetary law would have to be addressed and consistency with the IMF’s legal framework would need to be ensured. Also, it would require an enormous communication effort.”

The reason for that is that most people in most countries, if properly consulted, would presumably opt not to live in an economy where interest rates were significantly below zero and cash was, by design and law, constantly depreciating in value, even more so than it is today. They would probably also prefer not to live in a CBDC-based economy, where largely unaccountable central banks would have unprecedented surveillance and control powers over the population.

This is the problem: the public, whether in Nigeria, the UK, the US, Russia, Brazil or the Euro Area, are not being consulted. And this is why what is happening in Switzerland is potentially so important. At the very least there will be a public debate on the issue.

As FBS president Richard Koller notes, pushing through such guarantees for access to cash in the European Union would entail the “almost impossible” process of securing approval from all 27 member states. It would also imply a degree of public consultation, representation and accountability that simply does not exist at the EU-level.

If FBS’ referendum on preserving cash were to actually pass and the government were to actually enact the legislation without watering it down too much (two big “IFs”), Switzerland could become a potential “European standard-bearer for the defence of cash,” says Koller. And that, in this humble blogger’s opinion, would be a good thing.