Eli5 What causes a coin shortage?

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I’m seeing places that say they’re short on coins, how does this happen? I looked it up and I’m still confused.

In: Economics

People accepting change and then never using it again, in part due to desire to limit contact with shared surfaces due to the current health situation.

When currency doesn’t get reused, a lot more currency needs to be produced and distributed to fit the needs of individuals and businesses who want to use it.

Most businesses don’t keep big stores of coins around, instead they rely on a constant flow of coins through the economy–some people pay with them, some people get them back in change, some get deposited at the bank, a business can request more coins from the bank, and so on. If people aren’t participating in the retail as much, because the government shut down businesses and told people to stay home, they’re keeping their coins at home and the flow stops.

Businesses need coins for giving change and they get those coins from banks. Banks either get coins from the government or from people and businesses who deposit them.

Only a certain number of coins are freshly made by the government, so the majority of the coins needed in circulation have to come from bank deposits.

During COVID there has a significant drop in people eating out and shopping, and people switched to using cashless payments. So instead of the coins in circulation being spent or deposited, they’ve been hoarded.

Since businesses still need to hand out change for purchases there’s a shortage.

There is a pretty significant coin shortage in the US.

During COVID, people cut way back on using change, because coins are always sorta germy. They took change from purchases, and just tossed it in a jar at home.

As the economy has started up, those jars aren’t making it to the bank at a sufficient rate. Coins last many years, the mint plans on 30 years, which makes them much better than paper money (about 1-2 years). So if 10% of the coins go into a drawer, that’s 3 years worth of extra production. The mint would need 5 years to replace those coins, so they really, really hope that people will start returning them to the bank.

For the past 10 years there has been a penny problem, because people are apparently throwing pennies in the trash. The mint doesn’t like that, as it costs much more than a penny to make one and that doesn’t count the cost of additional penny-making machines.

Please give your coins another chance to get to the bank, or spent, please.

People don’t tend to recirculate coins. They go into a giant jar at the end of the day rather than getting spent elsewhere. And people are using cash less in general. In normal times, people may go to the bank or Coinstar to cash in coins occasionally but may be less likely to do so during a pandemic. Even if people’s behavior is more back to normal now, lags in behavior created hiccups in the system.

Another contributing factor during COVID, but not necessarily a major one, was all the business that suddenly closed and didn’t re-open for months, if at all. Many of them had cash drawers at the ready, including lots of coinage. But all that cash was effectively “lost” when the doors were closed and no one entered. Same with all the vending machines and other coin-operated devices that were suddenly not being used and not being emptied of their monies. That’s part of why there was a coin shortage at the beginning of the lockdowns.

As restrictions relaxed and businessess re-opened, those coins they had locked away started becoming available again. But as others have posted, the increase in contactless payment methods and decrease in physical money usage in general has led to a decrease in coin circulation, and thus a shortage.

Another non-zero but minor factor would be numismatics; coin collecting. There have always been numismatists that have taken a fraction of the coin supply entirely out of circulation for collecting purposes. And like many hobbies during lockdowns, there was a potential increase in the numbers of people getting involved in the hobby. More collectors and collections means fewer coins in circulation; even moreso for those that kept up their collections after released restrictions. Again, probably not a truly significant amount, but still a factor.