Do you know the US is now facing a serious coin shortage sparked by the COVID-19 crisis? It’s true. Banks and retailers across the country are running seriously short on pennies, nickels, dimes, quarters and half dollars. It’s a serious problem which may get worse before it gets better. In a nutshell, here’s how we got to this point.
As you know, the coronavirus crisis reared its ugly head in late March and April, and the economy was quickly placed in lockdown for “non-essential” businesses in April and May. The Centers For Disease Control (CDC) and the World Health Organization (WHO) warned consumers to stay at home, wear masks when going out and avoid contact with many objects – including coins – which they said could harbor the virus for up to several days.
As a result, many Americans started avoiding coins whenever possible. It’s not entirely clear what they are doing with their coins, but the assumption is they are storing them in jars or other containers in their homes. It remains to be seen what they’ll ultimately do with them.
In case you don’t get out much, signs like the one at left are plastered on the doors of retailers and businesses across the country, urging customers to pay with either credit/debit cards or the exact amount if paying by cash.
The point is, retailers don’t want to have to give you change in the form of coins, which they are very short on. For example, when retailers request $500 in coins from their bank, they may get only $200 worth. This is why many businesses are requiring cash customers to pay the exact amount in an effort to collect more coins.
Meanwhile, banks are increasingly offering to pay people for turning in their coins. It is reported that some banks are offering to pay people $105 for every $100 in coins they return for cash. We’ve never seen anything like this before.
To understand this problem, we need to look at how banks obtain coins to supply their retail and other customers. Whenever a bank needs cash or coins, it can reach out to one of the 12 regional Federal Reserve Banks. Some larger banks acquire coins directly from the US Mint, which produces all US coins.
Yet the Mint sharply curtailed operations in April and May, just at the time when people were avoiding coin usage as never before. While the Mint is now back in full operation and producing new coins as fast as possible, it will take time to catch up. So, the coin shortage may get worse before it gets better.
The real problem is the so-called “multiplier effect” — in this case, how many times does a given coin change hands over its lifetime before it wears out and is taken out of circulation. The fact is, with people wanting to avoid contact with coins, they are just not using them nearly as often as in pre-pandemic times. Therefore, the number of times a given coin changes hands is down sharply.
As noted above, it is not entirely certain what people are doing with their coins, but I think it’s safe to say they are not throwing them away. These coins will definitely come back into circulation at some point. So, it’s clear that the current coin shortage will go away on its own at some point. The only question is how long it will last and when it goes away.
The bottom line is, from toilet paper to baking yeast and other staples, shortages of consumer goods have become commonplace as the COVID-19 pandemic strains supply chains around the country and the world. But who would have thought the latest hard-to-find item would be coins – because people just don’t want to touch them. But here we are with a genuine coin shortage, as you can read here and here.
I don’t know about you, but I haven’t been significantly affected by the coin shortage. I’ve been using coins as usual in my daily activities that involve money. In fact, I didn’t even know there was a problem until I saw the coin shortage signs go up in the retailers I frequented recently.
Some actually predict this shortage could result the end of the US penny, and possibly even the nickel, both or which cost the Mint more to produce than their face value. That would be very interesting if it really happens!
The bottom line is the coin shortage is real and it may get worse before it gets better… but this, too, shall pass.
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