Why Do Coin Shortages Occur?

Father and young son count U.S. bills and coins at home
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A coin shortage can occur when the supply of coins in circulation falls below normal levels, which can be inconvenient for businesses and consumers alike. When this happens, you may be wondering why and what it means for you.

Several things can prompt a coin shortage. The more you know about how change shortages work, the easier it may be to deal with if and when they happen.

Key Takeaways

  • A coin shortage is the result of a diminished supply of coins in circulation. 
  • The majority of coins in circulation can be tied to retail activity and deposits from third-party coin processors.
  • A coin shortage was triggered by the COVID-19 pandemic in 2020, but change shortages have occurred because of other reasons. 
  • When a coin shortage happens, you may be encouraged to pay with exact change or use debit cards, credit cards, or mobile wallet apps to pay.
  • The Federal Reserve works with the U.S. Mint to resolve coin shortages when they occur.

Why Coin Shortages Happen

To understand coin shortages and how they happen, it helps to first look at how coins get into circulation. In the United States, coins are produced by the U.S. Mint. Coin inventory is managed by the Federal Reserve. The Fed is responsible for distributing coins to banks, credit unions, and other depository institutions. 

From there, coins make their way into the general public through various channels, including retail activity. When a shopper pays with cash, they may get change back. They may then go to another store and make a purchase using some of that change to pay. 

Coin shortages happen when there's an imbalance in the supply of coins in circulation. In 2020, the COVID-19 pandemic significantly disrupted coin circulation as retail stores temporarily or permanently closed. In 1999, surging demand for coins led to a nationwide penny shortage. The U.S. Mint had to issue 13 billion pennies that year to bring supply back to normal levels.

Coin shortages can happen due to phenomena like these examples in 2020 and 1999, but other factors can come into play.

Increased Electronic Payment Options

Mobile and over-the-phone payments make purchasing things or paying bills convenient and secure. Under normal circumstances, digital payments alone may not result in a coin shortage. But they can be a contributing factor when more consumers opt for electronic versus cash payment methods. 

For instance, more than 40% of consumers surveyed by the Federal Reserve Bank of San Francisco in August 2020 reported switching from in-person to online or phone payments during the pandemic. When making payments in-person, 45% of consumers reported that merchants specifically asked them to pay with cards, ostensibly out of concerns for both safety and security.

Decreased Coin Production

A coin shortage can also be the result of a decline in coin production. In early 2020, the U.S. Mint's production capacity dropped as measures were taken to safeguard the health of employees and prevent the spread of COVID-19. By mid-June of that year, the Mint was back to operating at full capacity, but the temporary decline in production did contribute to the coin shortage to a degree. The U.S. Mint ultimately produced 14.8 billion coins in 2020, which was 24% more than the 11.9 billion coins it produced in 2019.

Limited Coin Circulation 

Change shortages can result from fewer coins being in circulation. In 2020, many people were subject to stay-at-home orders during the pandemic. As a result, a number of businesses closed. This meant consumers who had cash couldn't spend it and businesses that accepted cash payments couldn't receive it. 

At the same time, fewer consumers were depositing coins at banks and credit unions or trading them for paper money through coin-counting kiosks. Together, these factors resulted in fewer coins being in circulation.

How Coin Shortages Affect You

A change shortage can affect consumers in different ways, largely because of how they affect businesses. 

When there are fewer coins in circulation, businesses may require you to pay with exact change, or they may advise you that they aren't able to give back coins as change. And in a severe coin shortage, businesses may be prompted to move away from cash or coins as a form of payment altogether. 

A laundromat is a business known for requiring customers to use coins as payment. A coin shortage could impact its business, so it may ultimately adopt mobile- or card-only payments.

Coin shortages may also be problematic for people who are underbanked or unbanked. A June 2019 study by the FDIC found that an estimated 5.4% of American households (7.1 million households) are unbanked. That means they don't use traditional banking products or services. For someone who primarily pays with cash, a coin shortage can cause obstacles. They may have to use alternate payment options, such as money orders or prepaid debit cards instead, which may involve paying fees. 

Relying on debit or credit cards could also lead to overspending during a coin shortage. Numerous studies, including research conducted by the Sloan School of Management at MIT, have concluded that paying with plastic can result in spending more. For consumers who are already struggling with debt, a change shortage could potentially compound the problem. 

Resolving Coin Shortages

The Federal Reserve and the U.S. Mint took action to help ease the coin shortage that occurred in 2020 by increasing coin production. The subsequent reopening of businesses also helped to put more coins back into circulation as consumers began spending money in person again. 

When a coin shortage happens, there are some things you can do to minimize its impacts on a personal level, such as:

  • Using coins to pay at retailers in person
  • Depositing rolled coins at your bank, if they accept them
  • Using coin-counting machines to exchange coins for paper bills

In addition to cash, coin-counting kiosks may offer you the option to get your money loaded onto a gift card instead.

Opening a bank account can also be a smart move for combatting a coin shortage if you're unbanked. When comparing bank accounts, be sure to pay attention to things like fees and minimum balance requirements. 

Coin shortages have happened in the past, and they’ll likely happen in the future. It’s smart to understand how the Fed and the U.S. Mint handle this issue—as well as what you can do—so that you and your family are not greatly impacted by a coin shortage.

Frequently Asked Questions (FAQs)

Why can you change your coins for cash for free?

Banks and retailers allow customers to deposit or pay with coins so they can keep them in circulation. If you have a bank account, or if you frequent certain stores, you may be able to change your coins for cash for free by making a deposit or a purchase.

Where can you get coins?

If you have cash but need coins, you could make a trade at your bank. You can also use machines that make change to exchange cash for coins. With these machines, you may be able to deposit $1, $5, $10, or $20 bills. The catch is that the change you receive may only be quarters. If you need dimes, nickels, or pennies, you may need to take your quarters to a bank or a store to swap them out.