Finland, like its Scandinavian peers, is among the world’s most cashless economies. But according to the central banker, now is not a good time to give up on cash.
Households in Finland should make sure they have some cash on hand, just in case the country’s payments system were to suffer disruptions, warned Päivi Heikkinen, the Head of the Payment Systems Department and Chief Cashier at the Bank of Finland. In an interview with the national broadcaster MTV3 on Tuesday, Heikkinen said her intention was not to ”fabricate catastrophic scenarios” before warning that in the worst case scenario, the payments system could go down for a period of weeks.
“I don’t want to paint devils on the wall,” she said, “but now we are talking about more serious disruption than what has been brought up in the past.”
Since applying to join NATO in July this year, Finland has allegedly been the target of a number of cyber attacks, including a Denial-of-Service (DoS) attack that targeted the Finnish Parliament on August 9, 2022, temporarily disabling the organization’s website. Since then, the State has begun awarding grants of up to €100,000 to companies, large and small to help them bolster their cyber security.
Although Finland has not yet joined NATO, its foreign minister Pekka Haavisto recently said it would still receive help from its NATO partners in the event of direct threat, even before full membership. Now, a senior official of that country’s central bank is warning of a possible cyber attack against the payments system that could disrupt the system for a period of weeks, and is urging people to hoard cash just in case.
The irony is that Finland, like its Scandinavian peers, is among the world’s most cashless economies. According to the Bank of Finland, it is on track to become completely cashless by 2030. A survey conducted last year by the central bank found that only 7% of people use cash when making purchases. Ninety percent of the survey’s respondents said they pay for their groceries with a card or mobile payment app.
Not a Good Time to Give Up Cash
However, Heikkinen says that now is not a good time to give up cash completely, given the rising risk of attacks against Finnish infrastructure, including its payments system:
“More payment methods bring resilience. If a single payment method sometimes does not work, then we have other payment methods at our disposal. Cash still plays a very important role here.”
One of the oft-overlooked drawbacks of increasingly cashless economies is their inherent fragility. Readers may recall from an article I wrote in June that a widely used payment card terminal in Germany, the H5000, suffered a software glitch, forcing many retailers in the country to display “CASH ONLY” signs on their windows. As I noted in the article, Germans, like their Austrian cousins, have a lingering soft spot for physical lucre. Whereas cash accounts for only about 12% of all payment transactions in Finland, in Germany it accounts for more than 60%.
This meant that when the payment outage hit, German consumers and retailers had a fail-safe option to fall back on. As Heikkinen notes, cash provides resilience. It won’t fail in a power cut or seize up during a cyber attack. That was the lesson offered by Puerto Rico’s harrowing brush with Hurricane Maria in 2017. After the category-four hurricane took out the island’s power grid for weeks on end, the island essentially became a de facto cash-only economy, dependent on airlifts of undisclosed cargoes of cash from the Federal Reserve.
As Brett Scott notes in his recent book Cloudmoney: Cash, Cards, Crypto and the War for our Wallets, any society that runs purely on digital platforms operated by large financial institutions “is going to have major resiliency problems.”
That inherent systemic fragility is one of the reasons why the Bank of Finland has recommended that the use of cash payments be guaranteed by law. In March, the bank initiated a proposal for legislation to ensure a minimal level of cash-paid services.
It also seems that many Finns are already taking the risk of disruption to the country’s digital payments system seriously. According to a study commissioned by Nosto ATMs in April, more than a third of people had already withdrawn or were planning to withdraw extra cash due to the proxy war in Ukraine between neighboring Russia and NATO. That was before Finland applied for NATO membership.
Meanwhile, Down Under…
Finland was not the only US-NATO aligned country where a senior bank regulator warned this week about the heightened risk of disruptive cyber attacks against financial institutions. In Australia Wayne Byres, the outgoing chairman of the Prudential Regulation Authority, said a cyber attack on at least one of the nation’s financial institutions is all but guaranteed; it is just a matter of time:
Financial institutions, at least in a broader context, are quite advanced [in cybersecurity], but what we also know is that, at some point, some sort of event will happen. It doesn’t matter what sort of defences you put in place…
Unlike many risks that financial institutions deal with, you’ve got an active adversary that is constantly trying to defeat your improved defences… It’s high on the priority of all boards of all executive teams; there’s a huge amount being put into investment in improving defences, improving detection capabilities, and improving response capacity.
Bryes was giving testimony Tuesday to a parliamentary committee convened to investigate a recent cyber attack against Optus, Australia’s second largest telecommunications provider. Said attack took place on Sept. 22 and resulted in the personal data of 10 million current and former Optus customers being exposed. That data included customers’ names, dates of birth, phone numbers and email addresses, while a smaller subset of customers had their street addresses, driving licence details, medicare and passport numbers leaked. Some of those customers are now falling prey to scammers.
Australia’s banks have been plagued by a slew of IT outages over the past few years. In fact, on Wednesday, just a day after Bryes’ warning, the Osko payments system suffered an internal system engineering issue. Developed by a consortium of 13 financial institutions, including the Reserve Bank of Australia, Osko provides for almost-instant, around-the-clock settlement of transactions between banks. But when it went down on Wednesday evening, the result was a four-hour industry-wide bank payment transfer outage that left customers in limbo…
Read the full article on Naked Capitalism
Nick Corbishley 