By: AnnaMarie Mock, CFP®
The current coin shortage is an unlikely victim of the Covid-19 pandemic. More and more people are making fewer cash purchases, reducing the number of coins in circulation.
Using digital forms of currency over cash is not a new development as cashless transactions and e-commerce have increased over recent years. The Federal Reserve Bank of San Francisco reported that between 2017 to 2018, shoppers used cash for 26% of their payments, which was down from 30% the year prior.
However, this trend has been amplified over recent months due to COVID. Global retail website visits increased by nearly 37% from January to June 2020, generating almost 22 billion visits, up from 16 billion. Statista reported that in 2019 e-commerce sales worldwide amounted to $3.53 trillion and are projected to grow to $6.54 trillion by 2022.
Is there a Coin Shortage?
Coin shortage may be a bit misleading because plenty of coins are not currently in circulation being held in piggy banks or under car seats. According to the US Treasury, the total value of coins in circulation as of April 2020 is $47.8 billion, up from $47.4 billion in April 2019.
Although there is an adequate amount of change in the economy, the sedated pace of circulation from business and bank closures and an upsurge in e-commerce has disrupted the typical supply chain for coins and reduced inventories in some regions of the country.
Why is a Coin Supply Disruption a Concern?
This supply disturbance can severely impact lower-income individuals that do not qualify for checking accounts and debit cards. According to a report conducted by the Federal Reserve in 2018, 6% of US adults were unbanked, and 16% were underbanked, meaning they used alternative services like money orders. If businesses are not accepting cash or only accept exact change, this may create complications for people trying to purchase lifestyle necessities. Small businesses are also bearing the brunt as credit card companies charge the store a “swipe fee” for every transaction. The profit margins will narrow and potentially affect the stability of the business’s longevity as digital payments become a standard, and fewer people are equipped to pay with cash. There is an insufficient quantity of coins readily available where needed.
The US Mint has identified this as a risk and has asked for spare change to be put back in circulation, “the coin supply problem can be solved with each of us doing our part.” The Federal Reserve, alongside the US Mint, created a temporary cap on the orders depository institutions (banks, savings & loan institutions, and credit unions) can place for coins with the Federal Reserve to ensure that the current supply is fairly distributed as needed.
The Federal Reserve even assembled a US Coin Task Force “to work together to identify, implement, and promote actions to reduce the consequence and duration of COVID-19 related disruptions to normal coin circulation”. Since June, the US Mint has targeted to mint 1.65 billion coins per month for the entirety of 2020. In tandem with businesses reopening, this strategy will eventually channel more coins to flow back into the Federal Reserve, rebuilding the coin inventories.
Although there are measures to combat the coin supply issue in the short term, the significant uptick in cashless payments may be an inflection point for the widespread adoption of digital currencies. It seems like an irrelevant topic, but we need to handle the coin supply deficiency with care and urgency as it is part of a complex financial system. As the US Mint stated, “the coin supply problem can be solved with each of us doing our part.” On that point, my final parting words are to be sure to check under your car seats for coins!
Author’s Bio
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.