By Patrick A. Heller
By now, most Americans are aware that there is a shortage of circulating coinage in the country. A number of retailers I have visited over the past week now are pushing to take electronic payments because they don’t have coins to make change.
I have seen comments in a few circles claiming that this coin shortage was contrived as a way to eliminate the U.S. of coins and currency in everyday commerce. Such ideas reflect lack of familiarity with what has actually occurred. Here are the details of what is actually going on.
The best information I have is that about 90 percent of transactions in America do not involve the use of coins and currency. Instead, payments are made by check, cards or electronic means and a few use cybercurrencies. Even many vending machines and parking meters now accept debit and credit card payments. The trend over time in the U.S. and the rest of the world is for declining usage of coins and currency, though there are still nations where more than 50 percent of transactions are settled with cash.
As the usage of coins and currency has declined, so has the need for coins in circulation. The U.S. Mint strikes the quantity of coins ordered by the Federal Reserve Bank. In 2018, the total number of circulating coins struck was less than in 2017. In 2019, production was less than in 2018.
Coins in circulation come from two sources: newly struck issues from the U.S. Mint and accumulated privately held hoards that are returned to the banking system. The U.S. Mint projects that the number of U.S. cents in private holdings exceeds 500 per capita. When I helped my father-in-law disgorge his stash of cents, he had piled up more than 25,000 of them.
At any time, a steady number of these private coin hoards are being returned to the financial system. However, there is a labor cost for banks and credit unions to accept them. Therefore, most of these institutions will only accept coins from account holders for deposit to their accounts and must be rolled in wrappers.
As a coin dealer, we pile up face-value coinage in breaking up collections, where our bank allows us to deposit loose bags containing either 5,000 cents, 4,000 nickels, 10,000 dimes or 4,000 quarters. Our bank does not credit our account for these deposits until after the bank sends them to the Federal Reserve to be counted and rolled.
Unfortunately, as part of the lockdowns imposed to try to decrease the spread of the COVID-19 coronavirus, banks and credit unions have mostly closed their lobbies. The vacuum tubes used for drive-through banking services are unable to handle the weight of much rolled coinage. As a result, over the past several months, the supplies of coin hoards returning to the banking system have almost come to a halt.
At the same time that banks stopped receiving these coin hoards, the Federal Reserve had also asked the U.S. Mint to strike fewer coins than it ordered in 2019. Consequently, the quantities of newly struck coins did not fully compensate for the decline in recycled coin hoards. The result: a circulating coin shortage.
Part of the theories that some have advanced is that the circulating coin shortage was caused by some closures at different U.S. Mints. The San Francisco Mint, which strikes predominantly numismatic coins, was closed for six weeks beginning in mid-March. When production resumed, it was at lower levels to enable safer, socially distanced working conditions.
The West Point Mint, where almost all of the bullion coins are struck, experienced two brief closures to contain the spread of the COVID-19 virus. These closures hit as demand for U.S. bullion coinage in 2020 soared. For example, in 2019 the U.S. Mint sold a total of 152,000 ounces of gold among all four sizes of bullion-priced U.S. gold American Eagles. As of last Friday, the Mint had sold 393,000 ounces thus far in 2020 of these products. In silver Eagles, the U.S. Mint sold 14,863,500 of the bullion-priced coins in all of 2019 and had already sold 12,596,500 of them so far in 2020.
As the West Point Mint suffered its closures, some silver Eagle production was temporarily shifted to the Philadelphia Mint to help meet this soaring demand. Unfortunately, that had the effect of reducing the ability of the Philadelphia Mint to increase production of circulating coins.
To overcome the current circulating coin shortage, the Federal Reserve has increased the quantity of cents, nickels, dimes and quarters ordered for circulation. The Philadelphia and Denver Mints are ramping up production. By the end of 2020, they plan to strike the highest number of circulating coins since 2017.
Increased U.S. Mint production of these coins will gradually alleviate the shortage of coins in commerce. In addition, as banks and credit unions resume serving customers in their lobbies, they will also resume accepting the private coin hoards. Between these two sources, the current shortage of coins in circulation should be resolved within the next few months.
Let me discuss two other developments that have affected the supply and demand for coins and currency during the recent financial lockdown. First, coins and currency, because they can be handled by many people, are potential risks for transmitting germs and viruses. Some businesses, as a precaution, have limited or eliminated their acceptance of cash payments. That also has a minor impact on the supply and demand for circulating coinage, but not enough to bring on the coin shortage.
Second, as some people have lost jobs, there may have been a slight increase in those who have raided their “cookie jars” in order to pay for life’s necessities. However, I suspect that most people forced into this situation likely never had a significant accumulation to spend. As a result, I don’t think any increase in people trying to spend their coin hoards had any noticeable increase in supply compared to the previous pattern of people tapping this source of funds.
Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award 2012 Harry Forman National Dealer of the Year Award, and 2008 Presidential Award winner. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2019), Professional Numismatists Guild, Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and become part of the audio and text archives posted at www.1320wils.com).
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