Sweden's New Banknotes

http://www.ekf.vsb.cz/export/sites/..._Skaunic.pdf
IS CASH NEVER-ENDING? THE CASE OF SWEDEN
13th International Scientific Conference "Economic Policy in the European Union Member Countries" September 2-4, 2015, Karolinka, CZECH REPUBLIC

This paper discusses the differences between Sweden and Czech Republic with regard to cash. Sweden and Czech Republic have some basic similarities. They have essentially the same population, and they are both part of the EU but with their own strong currencies. Both countries are highly developed, although Sweden is wealtheir than the Czech Republic.

The Czech and Slovak Koruna were created at the same time in 8 February 1993 when Czechoslovakia ended. Slovakia converted to Euros on 1/1/2009.

1EUR=27.0408 CZK Czech Koruna (current rate)
1EUR=30.1260 SKK Slovak Koruna (fixed rate: replaced with Euro)
1000SEK = 2,858.79 CZK (current rate)

The Czech Republic flirted with the idea of going cashless in 1993, as did other countries. But is currently circulating more than twice as much currency as Sweden including over 27 million high value 5000K#269; banknotes.

Ilja Skaunic speculates Regarding the decline in the use of banknotes of denomination 1000 SEK - about the causes of this phenomenon can be only speculate based on information available. To the most probably causes is possible to include low participation rate of the gray economy into the economy of Sweden, low levels of corruption and good payment behavior.

While that speculation is very upbeat about Swedish society, I would like to point out that the Swedish central bank also caused the destruction of the 1000SEK banknote by twice (2006 and 2015) replacing the banknote with a new one. While every country updates their banknotes, they normally produce more new ones than the old ones they are replacing. Sweden is pursuing the opposite strategy of only replacing a small percentage of the old banknotes.

I think it is also true that Norway has a small gray economy, low levels of corruption and reliable payment behavior. But Norway didn't change the banknotes and replace them with smaller numbers of new notes. The year over year reduction in 1000-kr banknotes was considerably less.

Circulation of 1000-kr banknotes in millions of notes
Year : Nor : Swe
2005 : 24.6 : 45.3
2006 : 25.8 : 42.1
2007 : 26.2 : 38.6
2008 : 25.4 : 34.3
2009 : 24.4 : 31.4
2010 : 23.1 : 28.6
2011 : 21.7 : 25.1
2012 : 21.2 : 21.4
2013 : 19.8 : 9.7
2014 : 18.7 : 6.2
2015 : 17.9 : 4.2
Sweden's current supply as of end of January
1.228 million new
2.697 million old design (invalid as of June 2016)

I just have a difficult time with that phrase "there is no demand" for a banknote. There is ALWAYS a demand for high value banknotes. When Canada was still producing the $1000 banknote, a mobster in Toronto would pay a bonus to bank employees who found a $1000 banknote.

In Sweden, the 1000SEK is really not extremely valuable (like the CAD$1000). I would think banknote collectors would want more than 1.3 million notes. Even among legal users of currency there are collectors, grandparents giving money gifts, hoarders, gamblers, etc. Demand does not naturally drop from 50 million to 1.3 million just because of SWISH. There is no demand, because there is no easy way to get banknotes in Sweden other than from ATMs.

I wrote to Riksbank and asked where there production numbers were published. They said the production numbers are not public information because "we don't wish to reveal how much we have in stock; something which would be easy to calculate if you knew how much we produce." While that is certainly a valid answer it could also apply to every Central Bank in the world.

When the USA Bureau of Engraving and Printing was going through that massive catastrophe with the production of the new color $100 banknote, they suspended the production reports for almost two years. When Iceland introduced the new 10,000ISK banknote in 2013, they announced they printed 40 ISK billion worth of these new notes. That was a huge amount as the whole banknote supply circulating at the time was under 43 ISK billion.

The Riksbank used one of two possibilities. They printed tens of millions of notes and they are hiding them away in case of a "run on the banks" like what happened in Iceland. The other possibility is that they only printed a few million notes, so in case of a run on the banks a return to cash is not an option. Either way, I could understand them not wanting their decision known.

But the massive reduction in 1000SEK is interesting because no other country is doing it. Not Norway, Denmark, Iceland, New Zealand, United Kingdom, Czech Republic or any other similar countries, and certainly not the major currencies.

But the 500SEK banknote in 2009 was circulating at 59.447SEK billion. Presently they have reduced that to 46.121SEK billion. If they significantly reduce that number to 10 billion range, and only replace a fraction of the value with 200SEK banknotes, then Sweden will officially IMHO be moving into previously uncharted territory.

As I said Norway stopped producing the 1000NOK banknote in 2005, but they have produced over 86 million 500NOK banknotes in the interim period. I don't know if Norway has the equivalent of SWISH, but they seem content to keep the cash supply stable (if in slightly smaller denominations).

But they may follow Sweden when they issue new banknotes.

I did find this table of banknotes and coins per capita for the year 2009&2014 (not purchasing power parity, straight conversion rate)

2014 Currency 2009 change
$8,655.39 Switzerland $6,557.23 32.0%
$6,429.42 Japan $7,255.42 -11.4%
$6,272.93 Hong Kong SAR $3,829.91 63.8%
$4,762.28 Singapore $3,176.88 49.9%
$4,218.24 United States $3,021.32 39.6%
$3,734.85 Euro area $3,629.96 2.9%
$2,459.01 Australia $2,249.01 9.3%
$1,839.18 Canada $1,721.16 6.9%
$1,587.94 United Kingdom $1,391.45 14.1%
$1,567.67 Saudi Arabia $3,556.34 -55.9%
$1,349.97 Korea $654.37 106.3%
$1,108.76 Sweden $1,641.35 -32.4%
$1,084.92 Russia $1,078.70 0.6%
$606.98 Mexico $451.75 34.4%
$480.77 Turkey $359.18 33.9%
$410.59 Brazil $395.50 3.8%
$217.48 South Africa $407.60 -46.6%
$180.46 India $146.38 23.3%
------- China $455.61


$1,274.98 excl euro area $908.59 40.3%
$1,564.27 incl euro area $1,129.80 38.5%


But the comparison was based on 2014 statistics in billions of SEK
83.22 Total banknotes and coin issued
77.89 Total banknotes issued
0.002 Commemorative banknotes
2.47 Invalid banknotes
5.34 Total coin issued
3.59 Banknotes and coin held by banks
79.64 Banknotes and coin in circulation outside banks

But in the 13 months since these figures were compiled, Sweden has greatly reduced their cash supply.
61.44 Total Valid banknotes issued less Commemorative

In the next 17 months as Sweden completes it's changeover to the new banknotes, who knows how low they intend to go. In particular they should get a few billion in Invalid banknotes as many notes will not be found and exchanged.

Personally, I think that the central bank is trying to get the banknote supply well below 50 billion SEK.

---I think the ratio of banknotes per capita is more telling than amount per capita because of the different standards of living (purchasing power parity)
Although there is some correlation, many other factors come into play.

Classic statistics for "Group of 10" from 1978 (ratio of currency to overall GDP). The "rank" is GDP per capita.
3.7% Canada 7
4.4% USA 4
6.5% Germany 2
6.6% UK 9
7.0% Sweden #1 GDP/capita of the Group of 10
7.0% France 6
7.3% Netherlands 5
8.5% Japan 8
8.6% Italy 10
12.4% Belgium 3
14.3% Switzerland not a member of group of 10

Switzerland had a much higher GDP per capita than any of the group of 10 nations, and it also had the highest amount of currency per GDP. Other than that there isn't a strong correlation between high GDP and Cash.


Statistics in 1999:, Sweden wasn't the primary contender to go "cashless". Currency as a percentage of GDP for EU countries in 1999 follows.

2.29% Finland
2.87% United Kingdom
3.02% Luxembourg
3.03% Denmark
3.35% France
4.37% Sweden
4.53% Ireland
4.63% Netherlands
5.14% Belgium
5.29% Portugal
5.99% Italy
6.58% Germany
6.74% Austria
7.08% Greece
9.72% Spain

Spain and Greece as poorer countries are more reliant on cash. But there are a lot of purely cultural biases. Britain is wary of large value banknotes because of the counterfeiting schemes in WWII. As you said, Germany and Austria value the privacy afforded by cash in transactions. I think of Finland as a more homogeneous country, and more trusting of banks.

Statistics for end of 2014, using same metric (Currency as a percentage of GDP) Sweden is the lead country in going cashless. Data includes all countries on the Committee on Payments and Market Infrastructures. End results for 2015 are not tabulated, but Sweden should now be well below 2%.

2.12% Sweden
3.56% South Africa
3.62% United Kingdom : big increase in 50£ banknote
3.80% Canada
4.01% Brazil
4.41% Australia
4.96% Turkey
5.04% Korea
6.19% Mexico
6.46% Saudi Arabia
7.74% United States (huge % of $100 bills overseas)
8.82% Singapore
10.33% Euro area (much higher than any national currency)
10.99% Switzerland
11.55% India
12.39% Russia
15.67% Hong Kong SAR
20.07% Japan

These countries represent a population of 4 billion, total fiat currency worth over 4.5 trillion dollars, and GDP of over 60 trillion dollars.
======================
---Riksbank has asked the citizens to return old series coins and old series banknotes because they will be demonetized a couple of months after the introduction of the new ones. Speaking from experience (losing the DM, getting the Euro) I can tell you that I and many of my compatriots got rid of DM in the weeks leading up to the change. Swedes might have done the same. Hence the reduction in cash in circulation

Yes, currency changeover results in turning in a lot of banknotes. The Euro area had equivalent of 380 billion Euros circulating in national banknotes in the year 2000, and reduced the amount to 270 billion by the end of 2001 when the changeover began. But once the new banknotes were introduced they were back to 380 billion in 18 months. By the end of 2014 banknotes passed a trillion euros.

The difference is that Sweden is producing new banknotes, but they are only replacing a small fraction of the old ones. Banks in Sweden only have 370SEK per capita in their vaults and ATMS, which is a paltry 40EUR.

In 2004 the Riksbank had 45.56 billion in 1000SEK banknotes circulating, 45.12 billion in 500SEK banknotes circulating, and 12.78 billion in the smaller banknotes.

As of Jan 2016 the Riksbank had 3.93 billion in 1000SEK banknotes circulating. 46.12 billion in 500SEK banknotes circulating, and 11.39 billion in the smaller banknotes.

Furthermore, 69% of the 1000SEK banknotes still in circulation are of the old type which will be invalid at the end of June 2016. Some of these will never be found, and only a small fraction are being replaced with new banknotes.

======================
---I agree, it's more than a little bit strange that Riksbank doesn't publish how many banknotes they have actually printed. However, I think you might find an answer in their annual reports. I am no accountant. But I think printed banknotes in their vaults should show up somewhere in their annual reports as assets.

Normally, Central Banks have to report on their expenditures for the year. As banknote production is a big cost, they must report how many banknotes they produced and at what cost per banknote. Then they say that the newest banknotes (many of which are polymer) cost twice as much, but will last three times as long.

Banknotes in circulation are technically considered liabilities, as they represent a promise to pay. But in the case of the USA, the large number of $100 banknotes in circulation in other countries is a debt that is never repaid. So it functions almost like profit.

While I am sure that the desire for privacy is high in any central bank, only Sweden does not publish production statistics. BTW, I wrote to them to see if production statistics were buried deep in some report, and they wrote back and told me that they consider it a secret.

Well, the €500 (and to a lesser extent the €200) note don't really circulate here in the Eurozone. They are primarily used to store value. So, the notes don't degenerate like lower denominations and last much longer. The intial production (plus the one from 2004/2005) were sufficient until the financial crisis of 2008/2009 hit. Then, the €500 note was needed again and produced in siginifant numbers 2009—2011, which is apparently still sufficient for present needs.




Unfortunately, Mario Draghi and his friends at the ECB are keen on having the ''weapon'' of negative interest rates. Therefore, he must make it much more difficult to store value in cash. The ''crime argument'' is a welcome (but mostly wrong) way to get it done by ending the €500 note. We will know the exact way the ECB will be doing it in a few months.

As you can read in other thread here at CCF now even the $100 bill is coming under attack in the USA for the same reason - making storing value in cash difficult.




The 1000 DM note was mainly used as a way to store value. Not only in Germany. But the Euro has a greater share of being a reserve currency (or safe haven) around the world then the DM back in the day. Plus, as you can see by the statistics, the demand for cash (=distrust of banks and financial system in general) has considerably risen in the last 15 years. Hence, it's no surprise the that the numbers for the 1000 DM are lower.


@PacoMartin
You seem to have the initial production numbers/figures of Euro banknotes. I only have them starting with 2002. It would be great if you could share the numbers of Euro banknotes produced until the end of 2001.

After writing my posting from Sunday I did some (re-)search and found a book via Amazon that deals with the Euro banknotes. The author has table in it which claims these were the initial production numbers for Euro banknotes:

Denom: # in billion
€5: 2,415
€10: 3,013
€20: 3,608
€50: 3,174
€100: 1,246
€200: 229
€500: 360

They are pretty close to the numbers you have calculated.


Considering the population of the Netherlands and Austria their highest denomination banknotes (before the Euro) seem also been having used to store value outside the country.

It will be very interesting to see how many of the new 1000 Swiss franc banknotes will be made.

I know circulation figures for Switzerland, but I haven't seen production figures

Billions CHF
Year : 1000CHF / All banknotes
2010: 30.41 / 51.50
2011: 33.28 / 55.73
2012: 37.42 / 61.80
2013: 40.03 / 65.77
2014: 40.54 / 67.60
2015: 41.79 / 67.41

2014 population 8.2366 million (5 notes per capita)

In the year 2000
Notes per capita : Mega-banknote
0.8 : 1000 Dutch Guilder
1.1 : 1000 German Mark
1.7 : 5000 Austrian Schilling

Presumably all three notes circulated outside of the country as it would be natural to expect some minor league currency speculation.

============================
Russian figures are from Red Book of Statistics on payment, clearing and settlement systems in the CPMI countries - The exchange rate was for "end of year"

2014
Exchange rate (RUR/USD):
56.26 end of year
37.97 average for year

Since Russia is a very cash based economy, the banks have to hold a lot of banknotes. Sweden has the lowest cash per GDP of the list of countries. China statistics are unreliable.

Banknotes and coin held by banks
4.31% Sweden
19.22% Russia

--------------------
Other Russian statistics for 2014
144,967 Population (thousands)
71,406.4 GDP (RUR billions)
492,570 GDP per capita (RUR)
11.4 Consumer price inflation (%)

RUR billions, end of year
8,848.22 Total banknotes and coin issued
8,770.50 Total banknotes issued
6,018.75 RUR 5000
2,184.71 RUR 1000
403.50 RUR 500
126.51 RUR 100
32.20 RUR 50
4.81 RUR 10
0.04 RUR 5
77.72 Total coin issued

1,700.27 Banknotes and coin held by banks
7,147.94 Banknotes and coin in circulation outside banks

Yes, you are correct. Converting to US dollars tends to make it look like there are fewer rubles over a several year period. In reality, there are more every year (which is true of nearly every country except Sweden).

Trillions of Russian Rubles (both in and out of banks)
2010 5.79 #1088;#1091;#1073;
2011 6.90 #1088;#1091;#1073; 19.2%
2012 7.68 #1088;#1091;#1073; 11.2%
2013 8.32 #1088;#1091;#1073; 8.3%
2014 8.85 #1088;#1091;#1073; 6.4%

Sweden has been reducing currency liability since 2007. I am expecting back to back reductions of over 10% for the next two years with the new banknotes and coins.

Billions of Swedish Crowns (both in and out of banks)
2007 114.32 kr
2008 112.27 kr -1.8%
2009 110.66 kr -1.4%
2010 104.57 kr -5.5%
2011 99.44 kr -4.9%
2012 95.78 kr -3.7%
2013 84.98 kr -11.3%
2014 83.22 kr -2.1%
2015 73.40 kr -11.8%