Historically in the U.S., production of circulating coinage has declined, sometimes sharply, during periods of recession and significant economic contraction due to reduced demand for coinage. That is why, for example, some very low mintage coins were issued during the Great Depression. More recently, during what is known as the Great Recession, there was also a significant drop in the production of pennies, dimes, nickels, and quarters. As the economy rebounded, demand for coins increased, and production resumed eventually to more normal levels.
The COVID-19 pandemic and related shutdown of much of the economy since March have put a new twist on this situation. Production of circulating coinage has been reduced over the past couple of months due to measures implemented by the U.S. Mint to protect the health of its employees.
And as a result of the recent shutdown of most businesses, including especially those like bars and restaurants where patrons may use or receive coins in change, as well as the virtual elimination of all cash transactions due to concerns about contracting the coronavirus from paper currency and especially from coins, the normal redemptions of coinage from the public and businesses have not been occurring at anywhere near usual levels. In fact, on June 18, the Wall Street Journal reported that coinage redemptions since March have been 50% smaller than they were a year ago.
Nationwide Circulating Coin Shortage
This situation has upended the standard supply chains for circulating coinage. As a result, for what is likely the first time since the mid-1960s (when silver coins were hoarded), a nationwide shortage has emerged of circulation coinage at banks across the U.S. during the pandemic. And that led the Federal Reserve Bank to take the unusual step of announcing on June 11 it would start rationing the distribution of coins on June 15 as well as saying it would work with the U.S. Mint to increase the supply, which is not easy during a pandemic.
While the average consumer is likely unaware of this problem today, those who work in the banking and financial sector are facing considerable challenges in providing their customers, especially businesses, with the coinage they request.
On June 17, during a hearing before the House Financial Services Committee, Federal Reserve Chair Jerome Powell told members of Congress that “the flow of coins through the economy has gotten all — it’s 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. Stores have been closed. So the whole system has kind of, had come to a stop. We’re well aware of this. As the economy reopens, we’re seeing coins begin to move around.”
Earlier last week, the Federal Reserve Bank issued a note to banks telling them that because of this situation, it would begin rationing coins, noting that the pandemic “has significantly disrupted the supply chain and normal circulation patterns of U.S. coins.” Deposits of coins from banks, credit unions, and related financial institutions have dropped a great deal during this period.
Also, the production of circulating coinage at the U.S. Mint has been reduced as a result of protective measures the Mint instituted to protect its employees, which has also affected collector coin production and resulted in the temporary shutdown of both the San Francisco and West Point Mints for a period. This is why the release of the 2020 Basketball Hall of Fame commemorative coin programs was delayed until June 4.
In 2020 production to date of cents is 2.672 billion compared to over seven billion last year; nickels are at 457.4 million compared to 1.094 billion last year; dimes are 866.5 million compared to 2.149 billion; quarters are 924.6 million compared to 1.651 billion. These numbers also reflect the fact that we are only halfway through the current year.
During the House hearing, Rep. John Rose (R-TN) said that banks in his district were only receiving a fraction of their average coin orders and that one bank said it would run out of coins within days. He said, “We don’t want to wake up to headlines in the near future such as ‘Banks run out of money’,” and that his primary concern is how this information gets communicated out to the public since bank employees do not know what to say to customers who request coinage.
Chairman Powell and the note from the Federal Reserve indicate that they are aware of the problem and working to resolve it, but financial institutions are concerned about how long it will take to address as well as by the short notice they were given about the forthcoming rationing of coins.
U.S. Mint Responds
The Mint issued the following statement to Coin Update on this matter on June 18:
As always, and especially during this challenging time, the Mint is committed to supporting our Nation’s economy and commerce through the production of circulating coinage.
In normal circumstances, retail transactions and coin recyclers return a significant amount of coins to circulation on a daily basis. However, the precautions taken to slow the spread of the virus have reduced retail sales activity and significantly decreased deposits from third-party coin processors, resulting in increased orders for newly minted coins produced by the United States Mint (Mint).
Throughout the public health challenge, the Mint has continued to meet its essential mission of manufacturing coins to facilitate national commerce. At the same time, the Mint continues to take all appropriate steps to safeguard the health and safety of our workforce.
Acting with an abundance of caution, the Mint has gradually and safely increased staffing at its circulating coin production facilities in Denver and Philadelphia and returned to full production staffing levels at both facilities on June 15. The Mint will continue to operate under mandatory Saturday overtime hours and voluntary Sunday overtime hours to help meet the demand for coinage.
As the issuing authority for United States coinage, the Mint is partnering with the Federal Reserve’s Cash Product Office (CPO), which manages coin supply and inventory from a national perspective, to minimize potential coin shortages and ensure the health of our Nation’s circulating coin supply.
It remains to be seen how serious the coin shortage becomes, how much impact it has on the public and businesses, and how long it takes to resolve, especially as the demand for cash — paper currency and coinage — continues to increase as the economy rebounds.
In addition, unlike the demand for coinage, which decreased during the shutdowns, the demand for paper currency grew during that period because, during economic crises, many people and businesses keep more cash on hand in case there are problems accessing their funds. While often true during economic crises, this was, even more, the case during the pandemic.
In addition to these concerns, the coinage shortage also has two other implications that should be of interest to numismatists. One is how it makes collecting circulation coins even harder than usual. During the last economic crisis, supply chain problems emerged with the distribution of quarters and dollar coins (which were made for circulation until 2011), which made it very difficult to collect those coins from change. This situation improved in recent years as the economy performed better.
Although collecting from circulation has declined substantially, especially compared to the pre-1964 days of silver coinage, earlier in the pandemic, the Mint began releasing its 2020 “V75” privy mark West Point quarters limited to two million. Compared to last year’s similar program without a privy mark, there has been a considerable increase in complaints from collectors compared to the previous year about how hard it is to find these coins in change, which is hardly surprising given the recent supply chain problems.
Future of Money
Due to the pandemic, most transactions today are being handled with credit and debit cards, which has had a notable impact on the debate about whether we need a digital currency and the related debate about whether we should have a cashless society. Those debates are sure to continue for many years, with further movement in this direction likely to be accelerated by possible future pandemics and economic crises.
In recent years, there have been increasing calls to create a digital dollar or a central bank digital currency. In March, legislation was introduced in the House and Senate to create checking accounts (known as FedAccount digital wallets) individuals could hold with the Federal Reserve, which would have benefits such as providing a better way to disburse stimulus funds to individuals, some of whom do not have traditional bank accounts.
During the House hearing, Chairman Powell said he did not support these proposals and warned against their unintended consequences for the banking system of those ideas. For example, he worried about what would happen to the private banking system and lending with so many people keeping their money with the Fed.
Also, earlier this year, he noted that cash was still an important part of the economy that continues to grow faster than the nominal gross domestic product (the total value of goods and services produced in a given period in non-inflation adjusted dollars). Other Fed officials have also issued cautious statements over the past year regarding the idea of moving toward a digital dollar.
It is worth mentioning that the dollar already exists primarily in digital form as cash-only accounts for about 11% of the total dollars in existence (which currently amounts to about $2 trillion worldwide), while the M2 measure of the money supply (which includes checking and saving accounts, money market accounts, etc.) is currently just over $18 trillion, according to Federal Reserve data for May 2020.
Meanwhile, around the world, the situation is very different, as China continues to work towards implementing a digital version of the yuan, and six central banks, including the European Central Bank and those of Sweden, Canada, Switzerland, the U.K., and Japan have agreed to share knowledge with each other as they consider a possible CBDC (central bank digital currency). And South Korea launched a pilot program in April to assess whether it should move forward with a digital currency.
In San Marino, the world’s oldest constitutional republic, and one of the smallest countries in the world, the pandemic has pushed the government to develop a new electronic currency called the titano (“titan” in English and named for a mountain in San Marino of the same name) that will have a value of one euro, be spendable only in San Marino, and will be used to pay up 30% of salaries and pensions through the use of a magnetic card called a SmacCard. Officials there say it is a liquidity generator designed to help families and companies deal with the economic consequences of the pandemic. Though not a full-fledged digital currency, the titan is undoubtedly an interesting development.
While cash — both paper currency and coins — is definitely not going away any time soon, the future of money in the U.S. is likely at some point to include some digital type currency whether in a decentralized private form, meaning possibly a cryptocurrency of some kind, or one centralized within the Fed. In the meantime, you may want to hold on to your circulating coins in case you need them in the coming weeks and months as that situation is sorted out.