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Author: Andrew Singer

As cyberattacks and privacy breaches mount, Nordic nations are leading the move to recalculate how digital-dominant economies operate.

The global shift toward cashless payments—a shift driven by speed, convenience, and digital innovation—has gained significant momentum in recent decades. The Covid-19 pandemic and the preference of younger generations for digital transactions have led many to consider a cashless society inevitable.

However, recent wars, natural disasters, and other crises have revealed vulnerabilities in fully digital systems. This has prompted a global reassessment of the significance of physical cash. Increasingly, governments, central banks, and technologists are endorsing a hybrid payments model that combines the benefits of digital transactions with the resilience, privacy, and inclusivity offered by physical money.

No region has embraced the cashless future quite like the Nordic nations. Sweden, in particular, has developed a largely digitalized economy. Sweden and Norway have the world’s lowest amount of cash in circulation as a share of GDP, according to Sweden’s Riksbank. Currently, about one-tenth of in-store purchases in Sweden are made with cash, compared to about one-half in the euro area.

Magnus Lageson, chief product officer at Sweden’s Crunchfish Digital Cash, has not used cash for over 10 years, he tells Global Finance. “The younger generations, like my kids who are 17 and 19, have never used cash in Sweden—and it’s the same for everyone in their generation,” he says.

Recently, however, the Nordic countries have begun to reassess their nearly cashless societies. One immediate concern is the Ukraine-Russia war and the threat of Russian hybrid warfare that might include cyberattacks and assaults on power grids and telecom infrastructure. In situations where electricity is lost, digital payment systems may fail.

Last November, Sweden’s government distributed a brochure entitled “In Case of Crisis or War” to all households. This brochure advised Swedes to keep on hand “enough cash for at least one week, preferably in different denominations.”

Norway has similarly advised its citizens to maintain a supply of physical cash, because digital payment systems are vulnerable to cyberattacks from abroad. Last year, legislation was passed to make it easier for Norwegians to use cash. Finland has also encouraged its citizens to prepare an “emergency home kit” that should include a small amount of cash in case of disruptions to payment systems.

There are several reasons why Sweden, Norway, Finland, and other nations may want to retain a cash option. Cash transactions are private, whereas digital payments, especially within a central bank digital currency (CBDC) framework, may allow for government monitoring, such as tracking purchasing habits and locations.

Additionally, marginalized groups, including low-income individuals, still rely on cash for their daily transactions. Not everyone owns a smartphone or has a bank card.

New Zealand Flips The Switch

In February 2023, Cyclone Gabrielle knocked out power and telecom systems across vast areas of New Zealand. Many bank ATMs and other electronic payment infrastructure went dark, leaving people unable to pay for essential items like water and food for days in some regions.

The impact of Cyclone Gabrielle highlighted the importance of cash as a reliable payment option during community-level or national emergencies, as Karen Silk, assistant governor at the Reserve Bank of New Zealand (RBNZ), tells Global Finance. The country is proceeding with a pilot program aimed at developing digital cash for citizens and businesses. This would function similarly to traditional physical cash.

India, concerned about its unbanked population, has developed an offline digital payment system called UPI 123PAY, which allows users to perform transactions without an active internet connection. However, the system still requires at least a feature phone.

A study published by the European Central Bank (ECB) in December revealed that most euro-area consumers still consider having cash as a vital payment option. This sentiment has increased over the past few years, rising from 60% in 2022 to 62% in 2024. Remarkably, even among young people aged 18-24, 55% consider the option to pay with cash at least “fairly important.”

“The march toward a cashless society is not inevitable,” says Jay Zagorsky, a professor at Boston University’s Questrom School of Business and author of The Power of Cash: Why Using Paper Money Is Good for You and Society, in an interview with Global Finance. “I think that once people understand that paper money has many benefits—from ensuring privacy to reducing the price people pay to protecting them from natural disasters—cash will enjoy a rebound.”

Ignazio Angeloni, a former ECB official and current fellow at Milan’s Bocconi University, expresses his satisfaction with the renewed respect for cash. “I was always convinced that physical cash should be part of a diversified and robust payment ecosystem,” he says. “I am glad to see that an increasing number of people and institutions share this view.”

‘Only Elderly People Still Use Cash’

Not all economists, policymakers, and central bankers share Zagorsky’s optimism about cash use. Paul De Grauwe, a professor at the London School of Economics and a former member of Belgium’s Federal Parliament, notes, “The use of coins and paper money is declining inexorably. Only elderly people still use cash. I think this trend is not going to stop.”

The convenience of digital payments cannot be overlooked. For instance, 29 out of 30 professional football stadiums in the US have gone cashless. The growing length of concession lines largely drove this decision. Handling cash—making change and counting bills—was slowing down service, leading many fans to forgo food and drinks rather than wait. By banning cash, stadiums created a win-win for fans and vendors alike.

In Latin America, digital payments are increasingly the preferred option for many consumers, both online and offline, according to Tory Jackson, head of business development and strategy for Latin America at Galileo Financial Technologies. Cash accounted for 57% of consumer-payment volume in the region in 2022, including the informal economy, reports Payments and Commerce Market Intelligence (PCMI). That figure has since dropped to 37%.

There is a prevailing sense of inevitability regarding the shift toward digital payments. As Crunchfish’s Lageson puts it, “The future is cashless; there is no turning back.”

But maybe it’s not so inevitable.

Are Digital Systems Too Fragile?

The Nordic countries were pioneers in digital payments, but they may be reaching the limits of a cashless society.

Vitalik Buterin, a co-founder of Ethereum, recently commented, “[The] Nordics are walking back the cashless society initiative because their centralized implementation of the concept is too fragile. Cash turns out to be necessary as a backup.”

Currently, digital payments rely on three legs: electricity, communications, and computers. All three must work all the time for digital transactions to occur, Zagorsky points out. In a cashless system, adversaries can disrupt the economy by targeting any one of these legs—whether by attacking the power grid, cutting telephone cables, or hacking payment-system servers.

A more practical solution that many central banks are advocating is a hybrid system: using digital transactions as the default option while maintaining cash as a parallel system to ensure privacy, accessibility, and contingency planning, says Arina Wischnewsky, an economist and a research and teaching associate at Trier University in Germany.

“A completely cashless society has always been more of a theoretical ideal than a realistic short- to medium-term goal,” Wischnewsky says. “The idea of completely abandoning physical cash is increasingly viewed as both risky and exclusionary, particularly in light of financial-inclusion and crisis-resilience concerns.”

Are Offline Digital Payments Viable?

In April, the Bank of England (BoE) released a report evaluating the feasibility of implementing offline payment functionality for a yet-to-be-created digital pound sterling. This option “might provide additional resilience in the event of network disruption or outage of telephony services, and support financial inclusion and certain payment use cases, such as transportation,” the central bank proposed. Several technology companies, including Thales, Secretarium, Idemia Secure Transactions, Quali-Sign, and Consult Hyperion, submitted prototypes to the BoE.

In a similar vein, the ECB issued a substantial tender in 2024 for fintech companies to develop a digital euro with offline capabilities.

Piero Cipollone, a member of the ECB executive board, emphasizes the importance of maintaining payment options. “The inability to use physical cash in online transactions or for digital payments at the point of sale deprives us of a key payment option, reducing resilience, competition, sovereignty, and ultimately, consumers’ freedom to choose how to pay,” he stated in a recent speech to the Committee on Economic and Monetary Affairs of the European Parliament.

New Zealand’s projected digital cash solution would be Bluetooth-powered, enabling store purchases even when the power grid or wireless towers fail. Today, New Zealanders can’t make instant payments electronically to each other “unless they are both with the same bank,” says Silk.

None of these solutions has been implemented at scale, however. The BoE project demonstrated that while an offline digital pound might be technically feasible, there are questions about “security, performance, and user experience challenges which need to be explored further,” and particularly “security challenges related to double spending and counterfeiting.”

Keir Finlow-Bates, CEO and founder of blockchain research and development firm Chainfrog, says that the technical challenges of offline electronic cash aren’t dissimilar to those faced years earlier by cryptocurrency developers. In a 2024 blog post, he references the “double-spend” problem. “How does one make a digital construct behave like a physical object so that only one person can own it at a time? That is the core problem when designing and implementing offline digital cash.”

Wischnewsky acknowledges that offline private digital transfers are technically possible and that many projects, including offline CBDCs, show promise. Still, “These solutions are not yet mature, widely scalable, or secure enough for full deployment in a [national] payment system.”

The benefits could be tantalizing, though. “Choosing to pay with an ‘offline digital euro’ would allow you to maintain a level of privacy that is close to cash,” writes Maarten G.A. Daman, data protection officer at the ECB, in a post on The ECB Blog. “You could pay a friend for your share of a dinner, and only you and your friend would know the payment information. How? You would simply both have the digital euro app on your smartphones and hold them next to each other to transfer the money.”

Not only could the offline option allay privacy concerns, it could also ensure that the poor, elderly, or geographically isolated members of society aren’t further disadvantaged. This last group is of particular concern for China’s government, whose digital yuan is nearing full rollout.

“Cash remains an integral component of consumer payments, especially among China’s rural and semiurban population,” Kartik Challa, senior banking and payments analyst at GlobalData, tells Global Finance. “Offline payments could be a key bridge for inclusivity in a cashless society.”