"Penny pincher" may take on new meaning in the coming weeks as the nation faces a shortage of coins.
Of all the crises the COVID-19 pandemic is responsible for, a coin shortage seems pretty low on the "what's keeping me up at night" scale. However, businesses across the country that deal in cash—banks, retailers, grocers, etc.—are feeling the break in the coin supply chain.
A "Temporary" Problem
On June 17, Federal Reserve Chair Jerome Powell confirmed the shortage during his testimony before the House Financial Services Committee, saying the flow of coins through the economy "kind of stopped."
"The places where you go to give your coins and get credit at the store and get cash, you know, folding money, those have not been working," Powell said. "Stores have been closed, so the whole system has … come to a stop." Powell said the Fed is aware of the issue and working with the U.S. Mint to address the issue. He also indicated it is a "temporary shortage" and coins will begin to move again as the economy reopens.
What if there's a second wave?
With COVID-19 cases spiking across the country—Wisconsin has seen a spike in average new cases per day at the time of this writing—many states are shutting down again. Consumer activity is likely to slow, as well, as people return to voluntarily sheltering in place, which will again reduce the amount of coins in circulation.
Part of the problem with the initial shortage is that the Mint's actions to protect employees reduced its coin production capacity. At the same time the Mint slowed production in order to sufficiently separate workers, it began seeing higher demand for newly minted coin due to the decrease in circulation. If similar staffing changes become necessary again, the country's coin supply chain may stutter.
Still in Short Supply
On June 30, the Federal Reserve sent a letter to member banks with an update on the coin supply. While there is an adequate supply of coins in the economy ($47.8 billion, up from $47.4 billion last year), the letter states the "dramatic deceleration of coin circulation … has meant that sufficient quantities of coin are not readily available where needed."
In the letter, the Fed encourages banks to order only the supply of coin they need to meet their customers' near-term needs and to remove barriers to customer coin deposits.
Additionally, the Fed will convene a group of industry leaders in July for the first meeting of the U.S. Coin Task Force. The task force is, according to the letter, "a limited-scope, limited duration task force" designed to "identify, implement, and promote actions to reduce the consequence and duration of COVID-19 related disruptions to normal coin circulation."
What Banks Can Do
In the efforts to get coin moving again, banks can help in four ways:
1: Only order the coins you need to meet short-term needs.
2: Encourage your business clients to offer gift cards instead of coins for change, if possible. Businesses can also help by encouraging check or credit card payments.
3: Encourage your customers to bring in any change jars or household coin cache they have to either deposit or exchange for bills. Parents can use it as a teachable moment, explaining about coin circulation while their child empties the piggy bank.
4: Use your social media accounts to raise awareness and encourage coin circulation with the hashtag #GetCoinMoving.
In addition, banks can draw on their connection to their communities to respond. For example, Brookfield-based North Shore Bank announced in early July it was opening up its free coin-counting service to non-customers. The campaign has generated a lot of interest, according to Susan Doyle, the bank's senior vice president of retail banking. "When we first received the notice of the shortage through the Fed and our currency provider, we looked at the opportunity," Doyle said. "We thought we could offer free coin counting service, which we already offered to our customers, to the whole community."
With this additional source of coins, Doyle says the bank has, thus far, been able to continue meeting the coin supply needs of its customers. One reason for the success is the community connection; North Shore Bank has done this before. "We've offered our coin counters to non-customers in the past, typically for a fundraiser of some sort," Doyle explained. The bank would open the counters to the community and match the dollars counted up to a certain amount, with the funds going to a local non-profit or other charitable cause. "We knew people in the community responded well to coin-counting initiatives," Doyle said. "Our branches are open, so we put the word out for people to come on in."
Bank efforts will help improve coin circulation in the short term, giving federal efforts time to materialize results. "The Federal Reserve is working quickly to tie up the mismatch between supply and demand that's currently happening," said Doyle.
The Future of Coin
Is the current shortage an indicator that cash is no longer king? Or at the very least, that the penny and nickel (which both cost more to produce than they're worth) are on the way out?
While they could disappear eventually, cash and coin aren't going away anytime soon. It is an essential financial tool for millions of unbanked Americans and those who prefer to keep their transactions private; no monetary vehicle is more easily anonymous than cash.
However, in a time when personal space is paramount (six feet of it) and touching something another person has touched requires gloves or hand sanitizer, using cash seems like a risky form of payment. As a result, many American are turning to digital payments. According to its Q1 earnings report, PayPal, which also owns Venmo, saw the largest single day of transactions in the company's history on May 1—outstripping both Black Friday and Cyber Monday of 2019.
While some consumers will return to using cash after the pandemic is over, many will continue their socially distant digital payment habits. Fintech companies are primed to take advantage of this shift, but the movement to digital also presents opportunities for banks. As consumer spending habits change, so will their banking preferences. Branch visits will likely continue to decline as customers favor mobile or online banking to in-person interactions for many banking activities.
Banks can take advantage of this opportunity by leveraging their digital channels to deepen existing relationships and highlight local investment.
Seitz is WBA operations manager and senior writer.
By, Amber Seitz