Why coins are scarce and what government, banks are doing about it

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Federal regulators and financial industry representatives are expected to release a set of recommendations in the coming weeks about how to jump-start the circulation of coins, which has slowed to a crawl during the coronavirus pandemic, according to two participants in the discussions.

Meanwhile, a number of banks — from JPMorgan Chase to community banks in Wisconsin and New York — have taken action on their own to address the shortage, including offering consumers bonuses for change brought in, stockpiling coins and strategically moving coins among branches.

The Federal Reserve has held two four-hour meetings this month with a task force that includes officials from the U.S. Mint, banking organizations, coin aggregators, armored money carriers and retail trade groups to figure out how to get coins flowing again and cash registers restocked. The group is considering a public call for coin deposits and ways to fix hang-ups in the supply chain that have caused lags in coin orders, said Coinstar CEO Jim Gaherity and Carey Whaley, an executive at the Independent Community Bankers of America, whose organizations belong to the task force.

Coins. Specifically, dies used for pressing nickels sit in a tray in Pennsylvania

When local economies closed to ward off the spread of the coronavirus, paper money and coins fell further out of favor as consumers used their debit and credit cards more often or made digital payments. There was early confusion over how easily the virus could be transmitted over paper currency and coins as banks closed branches at the start of the pandemic. The Centers for Disease Control and Prevention has urged retail employees to wash their hands after exchanging money. But a study published in the New England Journal of Medicine in April found evidence that the virus was more stable on plastic than copper, which is one of the main materials used to make U.S. coins.

For shops and other small businesses that rely on physical money and coins to give out as change, the shortage has become another weight as they try to stay afloat through the pandemic.

There are about $48 billion in coins circulating at any given time, said Matt Finn, chief economist at Old National Bank in Evansville, Ind. On top of a curtailment in production by the U.S. Mint at the onset of the COVID-19 pandemic, the public health emergency forced consumers to “abruptly change their consumption habits,” especially affecting coin-heavy services such as laundromats, public transportation and vending machines.

The system — in which businesses collect coins and deposit them at banks, which send the money to the Federal Reserve, which then redistributes the change — was “severely disrupted” on both ends as businesses closed down and customers stopped going to the bank, Finn said.

“The system got lumpy,” he said. “The coins didn’t go anywhere, and that’s precisely the problem — they didn’t go anywhere. Now the economy is reopening, but the coinage isn’t where it needs to be yet.”

Bigger stores have made major changes to deal with the problem. The grocery chain Kroger has stopped giving away coins as change and is applying the difference to loyalty cards or offering to donate the change to food banks. Some 7-Eleven stores are giving away free Slurpees to customers who exchange coins for paper cash.

The Fed warned in June that coin deposits financial institutions make at the central bank had “declined significantly,” making it tougher to fulfill orders for coins where supply is needed. U.S. Mint production also slowed as facilities were altered to protect employees’ health. Fulfilling orders for coins also became difficult as supply chains bottlenecked and deliveries dragged.

“Coin allocation caps are being reviewed on a monthly basis and will be adjusted based on current U.S. Mint production, coin deposit levels, and available Federal Reserve and coin terminal inventories,” a Fed spokesperson said in an email.

The upcoming recommendations from the Fed task force are expected to include a “call-to-action” campaign in order to “nudge” more consumers to deposit coins at their bank, said Whaley, who is the ICBA’s first vice president of payments and technology policy. What’s still being discussed is who would lead the call: private banks or the government itself.

Another issue left to be settled is how coins can be moved out of loose-change jars and back into the system safely. A variety of ideas are being considered, and more banks are expected to announce programs, Whaley said. Some banks could weigh drop-off programs, but there are logistical hurdles in the pandemic era despite the appeal of the idea.

“We have gone from an in-store culture to a curbside culture,” Whaley said.

Some companies have been thinking ahead and getting creative.

Since mid-July the $414.7 million-asset Community State Bank in Union Grove, Wis., has been offering a $5 bonus for every $100 in coins consumers bring in, as CNN reported recently.

Neil Buchanan, senior vice president for Community State, told American Banker on Monday that other banks have reached out to his bank to purchase coins that consumers have brought in. Buchanan said Community State has sold some coins to local banks; he declined to disclose how much the bank has collected in coins from consumers so far.

“It’s been hundreds and hundreds of people who have come to our bank, most of which have never come in before,” Buchanan said.

Some banks have complicated matters by removing bulky coin-counting machines from their branches in recent years as the industry has relied more on digital services, but many community banks still have them, Whaley said.

Coinstar’s Gaherity said in an interview Monday that his company has not seen a significant drop in activity at its machines, but that it has declined from pre-pandemic levels, especially as foot traffic at grocery stores — where many of these kiosks are located — has slowed.

Gaherity has participated in the task force meetings and said there is some discussion around who should lead the charge for more coins and whether banks or government agencies should be out in front of communications.

“There’s a lot of thinking being discussed around what campaign programs are to be implemented,” Gaherity said before expressing optimism that coin circulation will get back to normal in time. “This will end before the end of the year, I’m pretty sure of that.”

JPMorgan has taken several steps in the last few weeks to keep coins moving. The company has been redistributing coins through its network of branches to make sure clients can get what they can “albeit not as many coins as normal,” a spokeswoman said in an email Monday.

“But, we are seeing more coins come back into circulation as more businesses have opened up,” the JPMorgan spokeswoman said. “We will continue to monitor.”

A spokeswoman for Wells Fargo said the San Francisco company is “actively managing [its] coin inventory and working with customers to meet their coin needs” as much as possible.

One community bank was able to get far ahead of the problem.

Executives at Ulster Savings Bank in Kingston, N.Y., say they decided to stock up on cash and coins several weeks before the World Health Organization declared the coronavirus health crisis a pandemic on March 11.

Fearing a disruption in currency and supply distribution, the $1 billion-asset bank started reviewing its pandemic-response plan in January and took it to the board of directors in February. In addition to ordering more masks, gloves and disinfectant cleaning supplies, the bank ordered more currency from the Fed — about 30% more bills and coins than it would normally keep, President and CEO William Calderara said.

“I’ve been in banking for a long time, and I’ve been through other crises,” Calderara said. “So we looked at our plan and decided to go early because we know that sometimes when these things happen supplies become short, and if you wait it can be more difficult to get what you need.”

As the shortage intensified, the bank also decided to hold onto the coins it collects from coin-counting machines in the branch lobbies. Instead of shipping those coins back to the Fed, Ulster Savings employees have been rolling the change and recirculating it within the bank’s 14-branch network.

So far, the bank isn’t offering a premium for coins. In fact, there is still a small fee for noncustomers who want to deposit coins into the machines.

Calderara said that could change, depending on the severity of the shortage in coming weeks.

“If we start to feel the crunch … the next step might be to offer some type of incentive,” he said.

In nearby Montgomery, N.Y., Walden Savings Bank didn’t order extra currency. But it, too, took advantage of its coin-counting machines by recirculating the change that customers deposited and, as of last week, it is suspending the fee charged to noncustomers who deposit coins in the machines.

Holding onto those coins is proving to be beneficial for the $695 million-asset, 11-branch bank, whose currency supplies were cut by about one-third after the Fed’s change in allocations, according to John Carola, vice president of retail delivery and marketing.

“In that way, it kept the flow of things going,” Carola said.

Finn, the chief economist at Old National, was upbeat that the shortage would resolve itself. But he also forecasts a reduction in the overall use of coins as more people shift to contactless payment methods and more businesses accept debit and credit cards.

“That will affect the amount of coinage and currency exchanged on a daily basis,” Finn said. “I think that shift is somewhat permanent.”

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