lars nyberg : it costs to pay – do we use too much cash? speech by mr lars nyberg, deputy governor of the sveriges riksbank, at the finansforbund congress, balsta, 28 may 2008. * * * who pays the price? when we pay for goods we have bought at the supermarket or for the hamburger we eat for lunch we rarely wonder what the actual payment costs. this applies both to when we pay by card and pay in cash. and why should we care what it costs to pay? this is not a cost we ever see. but of course it costs to pay. it uses resources in the economy. why are there costs in cash? well, atms cost money to fill. and banknotes and coins are transported around the country by cash - in - transit firms which naturally want remuneration for this. moreover, the costs for the safety of their personnel have increased rapidly in recent years. card payments also cost money. they require terminals in shops and other places that accept such payments. and card payments require complex computer systems, which must be maintained and developed. credit cards also involve credit, and credit is never free of charge. if a shopkeeper pays a charge of 3 per cent to the credit card company, which is not unusual, this means an effective annual interest rate of 20 per cent in round figures, given a credit period of 30 days. what a relief, one might think, that we consumers don't have to pay for all this. but who is it that has to pay? because someone ultimately has to bear the costs. it is easy to initially assume that it is the retail trade and the banks that benevolently pay for payments. but it is not that simple. the merchants need to have their costs covered ; otherwise they will not be able to run their businesses. and the same applies to the banks. the costs of all payments therefore gradually arise as the markups on the prices of the goods and services we buy. milk and vegetables may become a little more expensive in the shop and the interest on our deposits at the bank may be a little lower than would otherwise have been the case. it is thus we consumers and bank customers who ultimately pay the costs of all payments. but we do not see them. we are therefore led to believe that they do not exist – or that someone is paying them. shouldn ’ t the actual costs be visible? is this a good system? normally, we

want to be able to see what various goods and services cost. the price helps us decide how much we will buy. we do not have any such price signals regarding the different methods of payment. the real prices are hidden. and this raises the question : if we knew what it actually costs, would we change our method of payment? for instance, would we use cash less and cards more, or vice versa? perhaps we are using methods of payment that require an unnecessarily large use of resources? this could mean higher costs than necessary and thereby higher price increases in the retail trade or less favourable interest from the bank. we at the riksbank have devoted considerable time and effort to analysing what different forms of payment cost and how we as consumers affect the efficiency of the swedish payment system when we choose our method of payment. today i intend to describe some interesting results from this research. firstly, what are the social costs of using cash and cards respectively? secondly, what is in our estimation the better choice between card and cash payments, from a welfare perspective? thirdly, how does the general public choose between cash and cards in practice? one result of our analysis is that we as consumers probably use more cash and fewer card payments than we would do if we realised what cash management costs – and if we had to pay for it. why is cash used more in sweden than in other nordic countries? in sweden, card payments have increased substantially since the mid - 1990s. but seven years ago swedes still appeared to be using card payments less than other nordic residents. at the beginning of the 2000s the number of card payments per capita in sweden was only half as high as in the other nordic countries. this implied that swedes used more cash. in recent years the use of cards has accelerated. with regard to both the number of terminals and use of cards per capita, the nordic countries are now very close to one another. the differences in card use between sweden and the other nordic countries – particularly with regard to denmark and finland – declined rapidly after 2001. nevertheless, cash is still used to a greater extent in sweden than in other nordic countries. if one suspects that cash may be a relatively expensive payment service, the more widespread use of cash in sweden in relation to the rest of the nordic countries could mean that the swedish payment system is less efficient in this aspect. but why do we use more cash in sweden? we do not have a good answer to this. however,