1st November 2023
The coin shortage puzzle: Unravelling the causes and solutions
The Coin Shortage Puzzle: Unravelling the Causes and Solutions
In an era dominated by digital payments and contactless transactions, one might assume that coins have taken a backseat in the world of currency. However, a closer look reveals a different reality — a reality where coins present challenges for many players within the cash management industry. These challenges are multifaceted, with the shortage of coins being a significant issue that affects various entities, including central banks responsible for managing the money supply, Cash-in-Transit (CIT) companies that face logistical obstacles, and tech players like us who are continues to innovate in this complex landscape.
Reasons for coin shortages
1. COVID-19 and cash stockpile
The COVID-19 pandemic changed how people think about and use cash. Some people hoarded essentials like canned goods, while others began stashing cash, including coins, at home. While the transition to cashless payments was accelerated during lockdowns, the unexpected demand for physical currency reflected a crisis-induced mistrust in institutions, causing people to turn to tangible cash. In Australia, the rush for coins caught the Royal Australian Mint off-guard as households stockpiled coins as staff at the mint worked double shifts to meet the surge in demand. Similarly, the United Kingdom (UK) witnessed an estimated £50 million hoarded in loose change while residents have been holding onto cash three times longer than before, according to figures from UK Finance in September 2021. The U.S. Mint, which decreased the production of coins due to social distancing measures, also saw a temporary pushback from rural banks and their business customers.
2. Collectors and coin melters
Additionally, the slowdown in circulation is also partly due to collectors and coin melters. It’s possible that some types of coins are less available to the general public due to collectors’ quest for rare and valuable coins that hold historical significance and intrinsic value. In extremely infrequent cases, some individuals may choose to melt down coins to extract their metal content. This is typically only done with coins made of precious metals, such as gold or silver, when the value of the metal is greater than the face value of the coin. Notably, there are legal considerations tied to these actions, but there have been instances where melting them down and selling the metal has proven profitable.
3. Coins forgotten
Picture this: coins sitting in piggy banks, drawers, and vaults, instead of actively participating in the economy. In the grand theatre of financial transactions, some coins find themselves overshadowed and forgotten. Many people tend to overlook low-value coins, considering them insignificant; and toss them into jars at home, where they remain unused for an extended period of time. As such, this has led to a gradual reduction in the circulation of coins, as they accumulate outside of the economic cycle.
There are bigger issues at play
Coin hoarding isn't merely an individual quirk; it actually has a ripple effect across economies. When coins don't move around as much, it causes problems.
Coins become scarce. When people hoard coins, they take them out of circulation. Fewer coins are available for businesses to use as change, making it difficult for people to pay for goods and services.
Consumers feel the crunch. Businesses may resort to rounding up or downing prices to avoid giving too much change, which can be confusing and frustrating for customers. This will most likely directly impact individuals who heavily depend on coins and cash for their everyday transactions. This includes people with lower incomes, as well as those who lack easy access to digital payment methods, such as the elderly and migrant communities, who might find navigating digital systems challenging.
Consumer spending and confidence declines. If the shortage of coins is prolonged and people can’t easily pay for goods and services, they may lose trust in the currency.
Coining new currency comes at a cost. When coins are scarce, it can lead to difficulties in obtaining coins for use in transactions and may require the minting of additional coins to meet demand. In some cases, coins cost more to make than their actual value in metal content and production costs.
Challenging to track and oversee. Hoarding coins can make it easier for some individuals to avoid taxes or engage in illegal activities, given that cash transactions are difficult to monitor and trace.
Addressing the challenges
Legislative ban
Consequently, governments might implement fresh regulations, including reducing the limits for cash transactions, to counter the misuse of money for unauthorised intents.
The Philippines has witnessed discussions among lawmakers in recent times regarding the potential implementation of laws aimed at curbing coin hoarding. The proposal aims to address an ongoing coin shortage issue that dates back to 2004. While these laws have yet to materialise, the Bangko Sentral ng Pilipinas (BSP), the country's central bank, has consistently advocated for the criminalization of coin hoarding.
In October 2021, the authorities in the Philippines raided a warehouse and seized 50 million one-peso coins. The raid received massive media attention, and the BSP once again renewed its calls to ban the hoarding of “extremely large” volumes of coins - highlighting the BSP’s unwavering stance and their commitment to finding a solution to this challenge.
Promoting circulation