The availability of goods and services around the clock on-line raises the question of why it should take longer to make a payment than it does to send a text message or private message via Facebook. All of this leads to demand for real-time payments. Instant payments, meaning the possibility of paying person to person in real time around the clock, have been made possible by digitalisation and new technology. In other words, this is a matter of small payments between private persons and is thus something other than what the Riksbank’s system has traditionally handled. Previously, verification, clearing and settlement has taken time to implement, but, at present, using new technology, it takes a few seconds instead of a few days. In Sweden, the number of users of the mobile application Swish has increased to over 6 million since its launch in 2012. 20 Swish is a system that makes it possible to execute instant payments between private persons. This means that I can enter a payment into my mobile phone and, a few seconds later, show you that it has been executed without having to wait a few banking days for account transfers. In addition, we can make payments with the system around the clock. In this way, it is reminiscent of cash. When banknotes change hands, the payment is completed, at the same time as the possibility of paying does not depend on the opening hours of the system or the banks.
The immediate consequence of such an increase in demand relative to output is a current account deficit and inflationary pressures. This is not a new point. It was prominent in the post-mortem examination of the UK boom and subsequent bust in the late 1980s. Nigel Lawson wrote in his memoirs “in the mid to late 1980s, there was a substantial upward revision of the permanent element [of income], particularly if we include capital gains, notably from home ownership. In part this was wholly justified, given the undoubted supply-side improvements that had occurred. But it clearly went too far”. (Lawson, N, The View from No 11, Bantam Press, 1992, p 632.) And there is the rub. Provided the increase in productivity materialises, families and firms will be able to repay the debts incurred to finance the increase in spending. The levels of spending and output will converge, and the current account deficit will steadily subside. But if optimism has run ahead of reality, then, at some point an awkward downward adjustment to spending must take place. In such circumstances, the adjustment to quantities - both spending and the trade deficit - are likely to follow sharp adjustments in asset prices - both stock markets and exchange rates - when expectations come back into line with the underlying increase in productivity. My final question was what does this mean for the economic see-saw in the UK? At present domestic demand is up and external demand is down.