On June 11, the Federal Reserve announced it would ration coin distribution to depository institutions based on the historical order volumes by denomination. The COVID‐19 pandemic has significantly disrupted the supply chain and normal circulation patterns for U.S. coin. Deposits from depository institutions to the Federal Reserve have declined significantly and the U.S. Mint’s production also decreased due to measures put in place to protect its employees. Coinorders from depository institutions have begun to increase as regions reopen, resulting in the Federal Reserve’s coin inventory being reduced to below normal levels.
“With the partial closure of the economy, the flow of coins through the economy has kinda stopped,” Federal Reserve Chairman Jerome H. Powell said in testimony before the House Financial Services Committee last month.
In April 2020, the U.S. Treasury estimated that the total value of coin in circulation reached $47.8 billion, up from $47.4 billion in April 2019. While there is adequate coin in the economy, says the Treasury, the slowed pace of circulation has meant that sufficient quantities of coin are not readily available where required. With establishments like retail shops, bank branches, transit authorities and laundromats closed, the typical places where coin enters our society have slowed or even stopped the normal circulation of coin.
The United States Mint is the issuing authority for coins and determines annual coin production based on monthly coin orders and a 12-month rolling coin-order forecast from the Federal Reserve. The Mint transports the coin from its production facilities in Philadelphia and Denver to all of the Reserve Banks and the Reserve Banks’ coin terminal locations.
The Reserve Banks distribute new and circulated coin to depository institutions to meet the public’s demand. The Reserve Banks store some coin in their vaults and also contract with coin terminals, which are operated by armored carriers, to store, receive, and distribute coin on behalf of the Reserve Banks.
In July, the Federal Reserve started encouraging banks to accept consumer deposits of loose and rolled coins and has set up a task force – involving the Mint, Armoured Carriers, Banking associations, coin aggregators and the retail industry – to expedite the return of coins to normal circulation levels. They even have a hashtag: #getcoinmoving.
The Fed is also working with the Mint to increase production capacity and believes coins in circulation will return to normal levels once more businesses begin to reopen. So far in 2020, the U.S. Mint has produced 6.5 billion coins, including over a billion quarters.
Some retailers, including CVS pharmacies, discount chain Dollar Tree stores, Wawa and Stop and Shop, are giving customers the option to round up their purchase to the nearest dollar and the difference is donated to charity, according to local reports.
Supermarket chain Kroger is no longer returning coin change at its stores; the remainder of cash transactions is loaded on customers’ loyalty cards for their next purchase. Customers can also use the funds towards Kroger’s “Round Up” program to support the company’s Zero Hunger/Zero Waster Foundation.
According to pymnts.com, “Some cash-paying customers might dislike such moves, but putting change on loyalty cards could be a real boon for merchants. For openers, shoppers who don’t already have loyalty cards for a given chain might sign up just to keep from losing their change. Not only will those customers give the grocers some personal information in doing so, but they’ll presumably revisit the retailer in the future to spend their unused change.”
Other merchants including 7-Eleven, Pilot and Circle Kare simply requesting that customers provide the exact change or use alternative payment methods.
Coinstar, which owns 22,000 self-service coin kiosks nationally, said it saw lower coin volume during the lockdown but they’re starting to see an uptick in transactions. “Accordingly, we’ve been making more frequent coin pick-ups to help get coins back in circulation,” said Coinstar CEO Jim Gaherity.
The event has also rekindled the debate on the value of the penny. Will Luther, a Cato Institute academic and J.P. Koning, founder of the Moneyness blog, both advocate dropping the penny altogether. “Given its limited usefulness, the penny is too costly in normal times. The Mint lost 0.99 cents on each penny it sold in 2019.” writes Luther. “Of the 4.9 billion coins that the US Mint has produced so far in 2020, the majority of them—2.7 billion—have been pennies.” adds Koning. They recommend following the rounding rules introduced in countries such as Canada, Sweden, Finland or the Netherlands, where retailers round the transaction to the nearest 5 cents.
The US are not the first country to face a coin shortage. Monetary economist and historian George Selgin has recalled that Great Britain faced a coin shortage over two centuries ago “so severe that it threatened to stop British industrialization in its tracks.” The problem was solved when private firms started minting their own coins “heavier, more beautiful, and a lot harder to fake” writes Selgin. In Argentina, several supermarkets started issuing their own private banknotes due to coin shortages during the pandemic.
In 2015, the Hong Kong Monetary Authority launched the Coin Collection programme in order to foster the recirculation of hoarded coins. Two ‘Coin Carts’, which are trucks, equipped with two coin-sorters covered all 18 districts in Hong Kong. Users could choose to exchange their spare coins for banknotes or add value to their transit cards.
In the UK, Shrap is a CashTech which proposes to digitise coins as “they are the most inconvenient and inefficient element of the transaction” says founder Chris Forero-Slee . The solution allows people to pay in cash and for merchants to receive payment and return change electronically on a card or a mobile app.