Is Spain ready for a cashless society?

In our increasingly digital world, the transformation into a cashless society is no longer a distant dream. Central Bank Digital Currencies (CBDCs) are at the forefront of this evolution, offering a glimpse into the future of financial transactions. In our Final Year Project (TFG) at Universitat Pompeu Fabra, Marta Barrero Sepúlveda and I explored the feasibility of Spain transitioning to a cashless society, using Sweden as a benchmark. This article distills our findings and insights.

The Evolution of Payment Methods

Throughout history, payment methods have evolved significantly. From bartering systems to coins, banknotes, cheques, and, more recently, digital payments. Each transition has aimed to address inefficiencies in previous systems. Today, cash still dominates in many regions, but the rise of digital payment methods, particularly in the wake of the COVID-19 pandemic, suggests a shift towards cashless transactions.

Sweden: A Pioneer in Cashless Transactions

Sweden’s journey towards a cashless society provides a valuable case study. Several factors have contributed to its rapid transition:

1. Robust Digital Payment System: Sweden boasts a highly efficient and secure digital payment system, supported by strong fintech companies and innovative solutions.
2. Strong FinTech Sector: Swedish fintech firms have played a crucial role in developing new payment solutions, fostering a competitive environment that drives innovation.
3. Popular Mobile Payment App: Swish, a mobile payment app developed by Swedish banks, has become a ubiquitous tool for everyday transactions.
4. Supportive Legal Framework: Sweden’s legal environment supports the reduction of cash usage, allowing businesses to refuse cash payments.
5. Cultural Mistrust of Cash: A historical mistrust of cash, fueled by security concerns and tax evasion issues, has led Swedes to favor digital payments.

Spain: A Different Path

While Spain is also reducing its reliance on cash, the process is more gradual compared to Sweden. Several factors influence Spain’s slower transition:

1. Cash Preference: Cash remains the most used payment method in Spain, accounting for 40% of all transactions by value.
2. Card and Digital Payment Adoption: Although the use of cards and digital payments is increasing, it has not yet reached the levels seen in Sweden.
3. Legal and Regulatory Environment: Spain’s legal framework still strongly supports the use of cash, although recent measures to combat tax evasion indicate a potential shift.
4. Cultural Attachment to Cash: Spaniards have a cultural attachment to cash, partly due to historical financial crises and mistrust of banks.

The Role of CBDCs

The introduction of CBDCs could play a pivotal role in the transition towards a cashless society. CBDCs offer the potential for more secure, efficient, and inclusive payment systems. Both Sweden’s e-krona and the European Central Bank’s digital euro projects are exploring the possibilities of digital currencies. However, the success of these initiatives will depend on widespread acceptance and trust from the public.

Conclusion

Spain’s path to a cashless society will likely be a gradual one, influenced by cultural, legal, and economic factors. While the transition is already underway, with increasing adoption of digital payment methods, cash remains a significant part of the payment landscape. The development of CBDCs, such as the digital euro, could accelerate this transition, provided they address the concerns and preferences of Spanish citizens.

Our research, conducted in collaboration with Marta Barrero Sepúlveda and under the guidance of Xavier Cuadras Morató, highlights the complexity of moving towards a cashless society. It requires not only technological innovation but also cultural and regulatory shifts. Spain’s journey may be slower than Sweden’s, but the momentum towards a digital future is undeniable.