The COVID-19 pandemic has disrupted normal circulation patterns of U.S. coin and has posed significant challenges for the U.S. coin supply chain. A number of factors contributed to these challenges, including changes in consumer payment behavior, stay-at-home orders by state and local governments resulting in many business and bank closures, as well as the slowdown of the ability to obtain raw materials for manufacturing new coins, the availability of labor across the coin supply chain, and changes to the coin-supply-chain-servicing infrastructure.
The paper examines the causes that contributed to the coin circulation disruption, the impacts to those affected by this issue and response actions taken by the coin industry to address the situation. The paper is an informed summary with the aim to generate awareness and support of the issue from the broader coin supply chain and the American public, as well as to serve as the baseline for further study and action. By explaining all the different facets of this situation from the perspectives of various coin supply chain players, the paper attempts to answer the question of whether the coin circulation slowdown is temporary and will resolve itself when the pandemic ends, or whether it is a bigger issue that is here to stay. Finally, this paper lays out a few hypotheses for the U.S. coin supply chain in continuing to collectively respond to this challenge.
See below for key points from the paper.
- Three key factors that contributed to this issue are: 1) significant drop in consumer and business coin deposits into financial institutions (FI) and coin-collecting kiosks, and consequent reduction of FI deposits into the Reserve Banks; 2) initial reduced U.S. Mint’s coin production capacity in the early days of the pandemic; and 3) increased demand for coin in the late Spring/early Summer of 2020, when the economy began to reopen.
- There is no shortage of coin in the U.S. economy. There is more than enough coin in circulation to meet the needs of businesses and the public. Economic and behavioral changes resulting from the COVID-19 pandemic, as well as shifting business and consumer payment preferences and decisions, suggest most of these coins are sitting dormant inside America’s households.
- There have been prior coin shortfalls in history, but this pandemic is quite unique when compared to other previous disruptions. Many factors leading to the slowdown of coin circulation were easily observable and explainable. However, given the anonymous nature of cash transactions, the proportional contributions of each factor to the problem are difficult to measure with any degree of certainty.
- The coin circulation disruption is a problem of financial inclusion. The disruption makes it very difficult for American consumers and businesses to get the coin that they need to support cash transactions. Yet, like never before, the pandemic has emphasized the importance of cash for consumers. Millions of Americans rely on currency and coin as their only or preferred form of payment, and businesses rely on cash and coin to make change for those transactions.
- The introduction of new payment technologies has resulted in a gradual shift away from cash use overall, and the public’s willingness to hold and use coin has been diminishing in the last several decades. Yet, healthy coin circulation is dependent on consumer redemption of coin. The pandemic has highlighted the coin supply chain’s growing vulnerability to disruptions in consumer coin redemption activity.
- The pandemic has affected all participants in the coin supply chain, and they have all been responding in different ways. The Federal Reserve is allocating coin orders from financial institutions. Retailers are adjusting their practices to serve and retain customers, while FIs continue to address business model-driven challenges to accepting coin and making it available under allocation.
- There are still many unknowns in fully understanding this issue. We presume that consumers are holding most coin that isn’t circulating, that the FIs’ and retailers’ behaviors are driven by the uncertainty of supply, and that the pandemic’s impacts on the coin supply chain might be longer-term. As the coin industry starts to emerge from the pandemic, the big questions now are which behavioral changes will stick and how the coin supply chain should accommodate the new normal.
- Additional research into the use and utility of coin today might help our understanding of whether this issue is important enough to take more serious action through changes in policies, regulations, or even congressional action.
For information on how consumers, financial institutions, and retailers can help the situation, please visit the Recommendations and Resources (Off-site) page on getcoinmoving.org (Off-site). And don’t forget to help #getcoinmoving!