to play an important role in our payment system for the foreseeable future ( even though not 85 million years ) and why cards and other technological developments will not be able to fully take the place of cash. ironically, part of the explanation for this lies in the strong position that debit and credit cards hold on the swedish market. as usual i would like to make clear that my speech is an expression of my own views and that it may not necessarily be shared by my colleagues in the board of the riksbank. cards and cash in sweden cards compete with cash when we pay directly at the point of sale, for example in supermarkets, petrol stations, restaurants or at cinemas. it is the customers who choose how they want to pay, and as we no longer use cheques in sweden the choice is between cards and cash. a high level of card usage thus tends to go hand in hand with a low level of cash usage, and vice versa. in sweden, the use of cards has increased rapidly in recent years. in 2009, the average swede made 182 card payments but less than 30 cash withdrawals. this means that the value of the payments made by card has increased fivefold, and that the number of card payments has increased more than sevenfold, over the last 10 years. unfortunately, there are no corresponding statistics for cash payments, but if we assume that the cash withdrawn bis central bankers ’ speeches from atms is used to make purchases then the value of all the card payments is three times higher than the value of all the over - the - counter cash payments. another way of measuring cash usage is to compare the value of the banknotes and coins in circulation, which is usually referred to as mo, with gdp. if we do this we can see that between 2001 and 2010, mo fell from 3. 8 per cent to 2. 9 per cent of gdp. approximately two - thirds of the payments in the retail sector are made using cards, with some reservation for the fact that it is difficult to measure the number of cash payments in the economy exactly. the situation in denmark and finland is roughly the same as in sweden. in sweden ’ s case this means that we have really caught up since the beginning of the millennium when we used cards only half as much as our nordic neighbours. in a broader international perspective, we use cards to a relatively high extent in sweden. this particular combination of low cash usage and high card usage is unique to a limited number of countries

, the 1990s provided many illustrations of similar events. the discussion about financial cycles is far from new. one example is the major debate of the 1920s and 1930s between the austrians ( hayek, etc. ) on the one hand, and keynes on the other. keynes was focusing on the demand side and on how to get out of the bust, whereas hayek was focusing on the supply side and on how an economy got into the bust in the first place. while a great deal has been done to understand the reasons behind financial instability, many questions remain unsolved. so the discussion continues and when it comes to crises prevention, two conventional pieces of policy advice seem to emerge. the first line of defense is moral suasion. the central bank could warn market participants in various ways that they are becoming overly optimistic in their expectations about future cash flows, if we are talking for instance about stocks or real estate. the problem with moral suasion is that it is difficult to calm down a market that is rushing to new highs. talk rather than action is often not enough. still, if a bubble is starting to build up, it may be worth a try. this is one reason why several central banks have began to publish financial stability reports. in this way one can perhaps broaden the public discussion about what is happening. the second line of defense is prudential regulation. however, the way prudential regulation is done in practice raises two, interrelated problems. the first has to do with the fact that most financial crises stem not from individual banks getting into difficulties and affecting others by contagion. rather, in most cases, many institutions act more or less similarly, encouraged by overoptimistic expectations that macroeconomic conditions can be extrapolated uncritically into the future. the second problem with prudential regulation is that the tools are themselves often based on perceptions of risk which are not independent of the credit and asset price cycle itself. on the one hand, underlying actual risk builds up as expansion and leverage continue and the financial cycle proceeds on the other hand, apparent risk declines with the rise in collateral values. this causes difficulties for supervisors who tend to concentrate on individual institutions and treat risks as exogenous. this is not to deny that by improving prudential regulation, setting international standards ( for example basle ii ) etc, the risk of financial instability can be significantly reduced. supervisors are also recognizing the shortcomings i just mentioned and are