As digital currencies become more popular, could we be seeing the end of cash?

The pandemic accelerated the trend toward an increasingly cashless Sweden.

The pandemic accelerated the trend toward an increasingly cashless Sweden. Image: Unspalsh/Clay Banks

Marion Laboure
Director - Macro Strategist, Thematic Research, Deutsche Bank
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  • Sweden, Brazil and China are among a handful of countries seeing an increasingly cashless society with the digitalization of money.
  • Analysis suggests a general correlation between high-interest rates and less cash in circulation.
  • Central bank digital currency (CBDC) is inevitable, with 90% of central banks developing one and the percentage of countries developing or piloting a CBDC having doubled in one year.

On 1 November 1976, ABBA recorded the iconic song “Money, Money, Money,” which could perhaps serve as the mantra for any monetary economist during today’s high inflation.

However, the Swedish pop group’s Björn Ulvaeus, triggered by his son's apartment's burglary in 2008, ironically became a forceful advocate for eliminating cash for alternative forms of payment as he believed that such crimes would not occur in a cashless society.

Could Ulvaeus’s vision now be coming to fruition?

Have you read?

Sweden: Money, money, money but no cash

Ulvaeus was not the only Swede worried about the security of money, particularly in the mid-to-late 2000s after a string of high-profile raids, such as the spectacular 2009 Västberga helicopter robbery. As a result, the Swedish government launched marketing and public information campaigns to incentivize reduced cash usage. For instance, it launched Swish, an app-based mobile payment system, in cooperation with the central bank.

The government also introduced a cash register act in 2010, under which anybody accepting cash as payment had to use an approved cash register and offer the purchaser a receipt. In 2013 and 2016, the Riksbank conducted a multi-stage banknote and coin changeover.

The impact of these efforts on cash in circulation has been significant. Since 2007, the use of physical cash has constantly declined in Sweden. Cash in circulation represented only 1.1% of gross domestic product (GDP) in 2022, down from 2.6% in 2012. According to a 2020 survey by Riksbank, from 2010 to 2020, the proportion of people in Sweden who used cash fell from around 40% to less than 10%.

The pandemic accelerated the trend toward Sweden’s digitalization of money. A 2021 survey by the Orgio Group and the Payments Investigation found that only 8% of Swedes used cash in their most recent purchase, contrasting with 77% of Swedes who used a bank card. At the same time, 2020 saw an increase in contactless payment limits from SEK 200 to SEK 400.

Currency in circulation as a percentage of GDP for selected countries. Sweden is increasingly becoming a cashless society.
Currency in circulation as a percentage of GDP for selected countries. Sweden is increasingly becoming a cashless society. Image: Deutsche Bank

Brazil and China are among the few countries that have joined Sweden in this trend. For example, in China, currency in circulation decreased from 11% of GDP in 2012 to just over 8.2% in 2022.

China is the world’s largest mobile payment market and a leader in peer-to-peer payments and more than three-quarters of Chinese people are using digital payments rather than cash, according to Deutsche Bank research. The widespread use of QR codes has also supported digitalization in China through Alipay and WeChat Pay, their simplicity and security making them increasingly popular.

Will higher interest rates lead to the end of cash?

High-interest rates, as we are seeing today, incentivize consumers to deposit or save money. At Deutsche Bank, we analyzed the history of interest-rate hiking cycles in the United States and the United Kingdom between 1960 and 1983, finding a strong negative association between the level of central bank interest rates and cash in circulation.

Proving a causal relationship between cash in circulation and interest rates requires more work. Still, historically, high central bank interest rates certainly play a role in decreasing the amount of cash in circulation.

In most major developed economies, the last decade has been characterized by low inflation and low central bank interest rates associated with a rise in cash in circulation. However, the global inflationary spike of the last 18 months has prompted central banks to raise their respective interest rates.

In turn, a decline in cash is already starting to occur in some economies. For example, currency in circulation fell from 10.4% of the GDP in the United States in 2021 to 8.6% in 2022; for the Eurozone, it fell from 10.1% of GDP in 2021 to 9.8% in 2022.

The European Central Bank has warned that high inflation is a long-term challenge. There is evidence that, historically, once inflation spikes above 8%, it takes two years to fall beneath 6%.

It is likely that inflation will remain sticky and that interest rates will remain elevated over the next year as central banks attempt to bring inflation back to target. Therefore, high-interest rates will likely contribute to a significant reduction in the amount of cash in circulation in the future and will likely fuel the transition to digital payments. In fact, central banks are already developing alternatives to physical cash.

Towards cashless society

The question is no longer if digital cash will arrive but when and how. Today, 90% of central banks are developing a central bank digital currency (CBDC) and 62% are experimenting at the proof-of-concept stage – the share of countries developing a CBDC or running a pilot doubled from 14% to 26% between 2020 and 2021.

Interestingly, 76% of nations working on a retail CBDC are exploring interoperability with existing payment systems. This move would encourage the coexistence of central and commercial bank money and speed up the widespread adoption of CBDCs.

Central banks in nations representing about one-fifth of the world’s population will likely issue general-purpose CBDCs in the next two years. The Bahamas, the Eastern Caribbean, Nigeria and Jamaica already have live retail CBDCs. China has been working on a CBDC since 2014 and started piloting its digital yuan beginning in 2020 and has even been made available to foreigners in the Winter Olympics of February 2022.

CBDC projects and pilots around the world. cashless society. digital cash
CBDC projects and pilots around the world. Note: the use of this map does not represent the Bank for International Settlements’s position regarding the legal status or sovereignty of any territory or its authorities, the delimitation of international frontiers and boundaries or the name and designation of any territory, city or area. Updated February 2023. Image: CBDC Tracker, R. Auer, G. Cornelli and J. Frost (2020).

Is it the end of cash?

Despite the trend toward a cashless society and CBDCs’ progression, the end of cash is still far in sight and will still be used as a store of value and means of payment for some time.

As a store of value, cash usage as a percentage of GDP is increasing in the Eurozone, the United States and Japan. Cash is king when there is a crisis, such as a financial shock or pandemic. For example, in the Eurozone, the use of banknotes increased during the three months following the collapse of Lehman Brothers in late 2008, reaching a then-all-time high.

As a means of payment, cash is still essential. On a global level, we should remember that:

  • 1.4 billion people (over 20% of the world) are unbanked.
  • Many people worldwide still rely heavily on cash, particularly the elderly and those who use cash for small payments.
  • Cash is needed during a natural disaster because online access to digital currency might not be available (although the Cash Product Office does work to ensure access to cash during a disaster).

Digital payment systems are also vulnerable to hacks and cyberattacks. Ulvaeus probably did not consider that digital currency can also be stolen; the thieves don’t even need to break into an apartment.


Cash is also still popular among consumers. According to our Deutsche Bank proprietary survey of 3,600 individuals across the United Kingdom, the United States, China, Germany, France and Italy in December 2022, 21% of Americans and 28% of Europeans rank cash as their favourite payment method.

Moreover, over half of those living in developed countries believe that cash will always be around, a consistent viewpoint before and after the COVID-19 pandemic, indicating cash, for now, will be around for some time.

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