Why is There a Coin Shortage All of a Sudden? How Could Billions of Coins Disappear Overnight?
Retailers, who are often not paid in coins, are perennially left in the position of having to manage the change business. Meanwhile, coin hoarders store their change in piggy banks and jars, effectively taking it out of circulation. This phenomenon is not new, but it’s becoming more noticeable due to modern-day challenges.
The Declining Significance of Coins
For a long time, a cup of coffee could be bought for five cents. In those times, one-hundredth of a cup of coffee was considered too small to warrant a coin. As currency values have evolved, we now have coins of such small denominations that many people find it unwarranted to carry them. This inertia, both political and cultural, leads us to continue with this system indefinitely.
No Coin Shortage, Just Hoarding
There is no actual shortage of coins. The scarcity pertains to freshly minted coinage, not to the vast hoards of coins that individuals and families collect and store. Coins, in fact, are not circulated for most of their lives. After about 30 years of usage, they start to wear down. Consequently, the volume of new coins being supplied by mints is insufficient to meet the demand due to the lack of returned coins to banks.
Why Coins Are Staying in Jars
The significant issue isn’t that people are holding onto coins, but rather that once they are collected and stored, they are not getting back into circulation. People tend to empty their wallets and pockets of coins into jars at the end of each day. Historically, these coins would be returned to banks for new ones, but the process has become more complicated.
Banks have made it harder for individuals to interact in person, and in many cases, they accept coins but do not credit them until later after they have been counted. During the pandemic, the situation worsened with many bank lobbies being closed to the public. Coins could not be easily deposited through coin slots or pneumatic tubes. Retailers stopped bringing their coins to the banks as they just sat idle at home, leading to a bottleneck in the coin supply chain.
The Consequences of Hoarding
A staggering 90% of all coins in circulation come from individuals returning coins to banks. This percentage is derived from people bringing their collected coins back into the circulation. Only 10% of coins in circulation are newly minted. When the flow of returned coins slows down, the supply of available coins quickly diminishes. The U.S. Mint produces over 7 billion coins annually, but if each household hoards back one coin per person per week, they can potentially wipe out the entire annual coin production.
The Solution
To address the coin shortage, several measures can be taken. Banks should streamline their coin exchange processes to make it more convenient for individuals to return coins. Retailers could also encourage customers to participate in coin recycling programs, such as those offered by CoinStar machines. Additionally, cultural and political shifts towards valuing coins more could also help to maintain a more balanced circulating supply.
Understanding the dynamics behind coin hoarding is crucial for policy makers and currency management bodies. By recognizing the issue and taking proactive steps, we can mitigate the coin shortage and ensure smoother currency circulation.
Whether it's national coins or digital currency, the circulation of money is a complex system. Small changes in one part of the system can have significant ripple effects. By addressing the underlying cause of coin hoarding, we can work towards a more efficient and sustainable monetary system.