As much of the United States went into lockdown in mid-March, supply chains immediately began experiencing shortages of everything from toilet paper and hand sanitizer to pasta and yeast. Even items like jigsaw puzzles and video game systems became scarce as those in quarantine made attempts to stave off boredom. Now, there’s a coin shortage.
By mid-June, banks reported a struggle to keep up with the demand for coin currency.
There are several reasons for these shortages, according to CNBC. One part of the equation is the U.S. mint, which produced fewer coins than usual this spring in an attempt to scale back operations and keep onsite workers safe from COVID-19.
Distribution, on the other hand, has been a much bigger issue.
When the pandemic forced widespread economy closures, businesses that typically generate significant revenue in cash—such as bars, restaurants, and convenience stores—were not depositing regular earnings at local banks. Many of those businesses that did remain open, even in a limited capacity, encouraged customers to use contactless payment systems to limit the spread of the virus through cash and credit cards.
Not helping matters is that bank lobby and retail coin-sorting kiosks have also been experiencing reduced usage and transactions—some are completely off-limits for consumer use.
These factors were all responsible for cash flow disruptions to the nation’s banks, which, under normal circumstances, would reallocate those coins back into local circulation. Disrupted coin distribution, combined with mints producing less new money, is why we’re now seeing these coin shortages.
What the Federal Reserve System is doing about the coin shortage
Federal Reserve Chair Jerome Powell spoke to the House Financial Services Committee on June 17 about the coin shortages, as part of his semiannual testimony to Congress.
“What’s happened is, with the partial closure of the economy, the flow of coins through the economy has … kind of stopped,” Powell told Rep. John Rose (R-TN) when asked about the shortages. “The places where you’d go to give your coins and get credit and get cash and you know, folding money … those have not been working, stores have been closed.”
“So, a whole system of flow has kind of come to a stop. We’re well aware of this. We’re working with the mint [to increase supply], and we’re working with the reserve banks. And as the economy reopens, we’re seeing coins begin to move around again.”
When pressed on whether these shortages were temporary or indicative of a larger issue, Powell stressed that he believes it will be a temporary situation. The Federal Reserve also released a statement regarding the coin shortages.
“The COVID‐19 pandemic has significantly disrupted the supply chain and normal circulation patterns for U.S. coin,” the statement read. “In the past few months, coin deposits from depository institutions to the Federal Reserve have declined significantly and the United States mint’s production of coin also decreased due to measures put in place to protect its employees.”
The statement also outlined a plan by the Federal Reserve and reserve banks to begin rationing and allocating coin inventories.
“To ensure a fair and equitable distribution of existing coin inventory to all depository institutions, effective June 15, the Federal Reserve Banks and their coin distribution locations began to allocate available supplies of pennies, nickels, dimes, and quarters to depository institutions as a temporary measure.”
But as the country continues to reopen local economies, coin distribution should begin to bounce back organically.
Coinstar, which operates 17,000 coin-sorting kiosks in the U.S., has seen an uptick in people cashing in their change as stay-at-home orders have been lifted across the country. “We’ve been making more frequent coin pick-ups to help get coins back into circulation,” Coinstar CEO Jim Gaherity told NPR.
In the meantime, the alternative could see small businesses that can’t obtain change from their local banks being forced to round up or down customer transactions. Unfortunately, this could have drastic impacts on a business’ bottom line, as Rose pointed out, “in a time when pennies are the difference between profitability and loss.”