Why Do Coin Shortages Occur?

Coin shortages can occur when the supply of coins in circulation falls below normal levels, which can be inconvenient for businesses and consumers. When that happens, you may wonder why and what it means to you.

Several things can cause a shortage of coins. The more you know about how change scarcity works, the easier it will be to deal with it if and when it happens.

Why does the shortage of coins occur?

To understand the shortage of coins and how it occurs, it helps to first look at how coins come into circulation. In the United States, the coins are produced by the United States Mint.

The stock of coins is managed by the Federal Reserve. The Fed is responsible for distributing currencies to banks, credit unions, and other depository institutions.

Thereafter, the coins reach the general public through various channels, including retail activity. When a buyer pays in cash, he can get his change back. They can then go to another store and make a purchase using part of that change to pay.

Coin shortage occurs when there is an imbalance in the supply of coins in circulation. In 2020, the COVID-19 pandemic significantly disrupted the circulation of coins as retail stores closed temporarily or permanently.

In 1999, growing demand for coins caused a penny shortage across the country. The United States Mint had to issue 13 billion cents that year to bring supplies back to normal levels.

Coin shortages could occur due to phenomena like these examples in 2020 and 1999, but other factors could come into play.

Greater electronic payment options

Mobile and phone payments make buying things or paying bills convenient and secure. Under normal circumstances, digital payments alone cannot result in a shortage of coins. But they can be a contributing factor when more consumers choose electronic payment methods over cash.

For example, more than 40% of consumers surveyed by the Federal Reserve Bank of San Francisco in August 2020 reported switching from in person to online or over the phone during the pandemic.

When making payments in person, 45% of consumers reported that merchants specifically asked them to pay by card, apparently for security reasons.

Decrease in coin production

The lack of coins can also be the result of a decrease in the production of coins. In early 2020, the US Mint's production capacity declined as steps were taken to safeguard employee health and prevent the spread of COVID-19. In mid-June of that year, the Mint returned to full capacity, but the temporary decline in production contributed to the shortage of coins to some extent.

The US Mint ended up producing 14.8 billion coins in 2020, which was 24% more than the 11.9 billion coins produced in 2019.

Limited currency circulation

Coin shortages may be due to fewer coins in circulation. In 2020, many people were placed under stay-at-home orders during the pandemic. As a result, several companies closed.

This meant that consumers who had money couldn't spend it, and businesses that accepted cash payments couldn't receive it.

At the same time, fewer consumers deposited coins in banks and credit unions or exchanged them for paper money at coin counting kiosks. Together, these factors resulted in fewer coins in circulation.

The lack of coins affects you

The lack of change can affect consumers in different ways, mainly due to how they affect businesses.

When there are fewer coins in circulation, companies may require you to pay with the exact change, or they may warn you that they cannot return the coins as change.

And in a severe shortage of foreign exchange, companies may be forced to stop using cash or currencies as a form of payment.

Laundromat is a business known for requiring customers to use coins as a form of payment. The lack of coins can affect your business, so you can adopt payments only with a card or only with a cell phone.

The shortage of coins can also be problematic for people who have or do not have a bank. A June 2019 FDIC study found that approximately 5.4% of American households (7.1 million households) do not have a bank account.

This means that they do not use traditional banking products or services. For those paying primarily in cash, the lack of coins can create obstacles.

They may have to use alternative payment options, such as money orders or prepaid debit cards, which may involve paying fees.

Relying on debit or credit cards can also lead to overspending during a currency shortage. Numerous studies, including research by MIT's Sloan School of Management, have found that paying with plastic can lead to higher expenses. For consumers already struggling with debt, the lack of change can compound the problem.

Solving the coin shortage

The Federal Reserve and the US Mint have taken steps to help alleviate the coin shortage that occurred in 2020 by increasing coin production. The subsequent reopening of the businesses also helped put more coins into circulation as consumers began spending money in person again.

When a currency shortage occurs, there are a few things you can do to minimize its impact on a personal level, such as:

Use coins to pay at retailers in person
Deposit the rolled coins in your bank if they accept them
Using coin counting machines to exchange coins for paper bills
In addition to cash, coin counting kiosks may offer the option of loading your cash onto a gift card.

Opening a bank account can also be a smart move to combat a currency shortage if you don't have a bank. When comparing bank accounts, pay attention to things like fees and minimum balance requirements.

Coin shortages have occurred in the past and will likely occur in the future. It's smart to understand how the Fed and the Mint are dealing with this problem, as well as what you can do, so that you and your family are not too affected by the currency shortage.

We hope you enjoy watching this video about Why Do Coin Shortages Occur?

Source: Logan Allec

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