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Bank of Finland predicts country will be cash-free by 2029

The use of currency as a form of payment is dwindling in Finland, just as banknotes are being printed at a record pace. The Bank of Finland says half of the euro banknotes printed in Finland end up abroad, carried there by tourists. Russian residents in particular are known to hoard them, as they have little faith in the stability of their own currency.

Image: Lasse Isokangas / Yle

The Bank of Finland has calculated that if the current trend in using debit and credit cards continues, the use of banknotes in Finland will dry up completely by the year 2029 at the latest.

Yet, demand for a robust currency supply is growing strongly in Finland, and the Bank of Finland, which reserves the sole right to print banknotes and coins in Finland, reports it has put over 14 million euros into circulation. 

At the same time, the number of banks distributing banknotes has been cut by nearly half in the last 15 years, from 1,600 to 850 nationwide. Likewise, the number of ATM machines has also fallen; from 2,500 twenty years ago to 1,500 today.

Payment cards preferred

For a long time now, Finnish residents have preferred using payment cards in retail shops. The latest figures show that 7 out of 10 customers use a card, while only 13 percent tend to pay with cash. The remainder says they use a combination of both.

Measured in euros, card payments account for 42 billion in sales, while cash is used in transactions worth 16 billion. These figures account for 70 and 30 percent of total sales, respectively. 

But if the residents of the country are using less and less cash, where are all the banknotes going to? Bank of Finland says just a tiny fraction of the currency at large is being held in banks and ATMs, saying a full 95 percent is held by the public.

Kari Takala, a Bank of Finland advisor, says the large demand for banknotes has several “mysterious features”, but the Bank does have some theories about where it is all going.

Finnish tourists carry it by the bundle

First off, over half of the banknotes issued by the Bank of Finland are transported abroad. Cash is still the most common form of payment in Europe, and people leaving on holiday often withdraw a wad of 50-euro banknotes before their departure. In Germany, for example, eight out of every ten transactions are still carried out with cash.

The Bank of Finland says growing demand for 50-euro banknotes supports the theory of tourism exports. Finns are even known to travel to Europe to buy a car in cash.

In contrast, demand for 500-euro banknotes has fallen off in recent years. The Bank says now that Estonia has adopted the euro, the transfer of large amounts of high-value currency notes abroad to the south has been largely discontinued.

Russians hoard some, too

Second, large amounts of euros also end up outside the eurozone. It is generally believed that up to 30 percent of the euros that have been issued are currently outside the common currency area, as the euro has become the currency with the second-most dominance in the world, after the US dollar.

As a matter of fact, as of December 2006, the euro surpassed the dollar in the combined value of cash in circulation.

Many a vault and safety deposit box in Russia likely contains euros, waiting for a rainy day. Takala says Russian residents traditionally don’t trust their banking institutions, and therefore many aren’t inclined to trust their money to a bank account. The drop in oil prices has weakened the value of rouble even further, so Russians prefer to keep their savings in either euros or US dollars.

Even if the use of cash wanes in Finland, banknotes will still be a valid currency for a very long time. For the time being, the Finns are generally satisfied with the availability of cash, despite the cuts in bank and ATM services.

But should a cyber attack cause online banking and electronic payment systems to crash, or if a storm or flood would cut off electricity, it will quickly become clear to everyone that cash will always be a useful form of payment.

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