What a National Coin Shortage Means for Your Small Business

In the months since the pandemic began disrupting the American economy, many issues have hampered the small business community's ability to operate. One unforeseen consequence is a shortage of coins that normally circulate through the nation's currency. While states are working to safely reopen their respective economies, businesses are having to make decisions and change how they do things to adapt to the growing scarcity of coins.

How did the coin shortage happen?

It should go without saying that life for small business owners changed once COVID-19 started taking hold around the globe earlier this year. By mid-March most nonessential businesses throughout the U.S. were forced to close, but closures also took place in some key government facilities. One of those facilities that were shuttered was the U.S. Mint.

Tasked with printing our paper money and forging our coins, the U.S. Mint works to keep cash circulating through the economic system. Since it constantly helps cycle out old or damaged money with new bills and coins, the mint plays a major part in the country's economic health. Yet thanks to COVID-19, government officials admitted late last month that the shutdown "resulted in the disruption of the supply channels of circulating coinage."

At the same time, the slowdown of new pennies, nickels, dimes, and quarters severely cut into the flow of coinage, the Board of Governors of the Federal Reserve System said the closure of businesses and banks compounded the issue by further disrupting the "supply chain and normal circulation patterns for U.S. coins."

"While there is an adequate overall amount of coins in the economy, the slowed pace of circulation has reduced available inventories in some areas of the country," the board said in a recent statement. "The Federal Reserve is working with the U.S. Mint and others in the industry on solutions."

Without regular deposits from so-called "third-party coin processors" and a depressed retail sector, both of which account for 83% of the circulation of newly minted coins, officials at the mint have seen an increase in the number of orders for new coinage.

"Simply put, there is an adequate amount of coins in the economy, but the slowed pace of circulation has meant that sufficient quantities of coins are sometimes not readily available where needed," according to the mint. "You may be experiencing this in your local communities. We are asking for your help in improving this coin supply issue."

Key takeaway: Thanks to the COVID-19 epidemic, businesses, banks, and the U.S. Mint had to shut down for weeks at a time. Because of that, coins haven't been circulating as regularly, leading to a shortage.

What does the coin shortage mean for your business?

There's an adage that says, "cash is king," and for most small businesses in America, it's true. According to the results of TD Bank's Small Business Recovery Survey, which polled 750 small business owners across the U.S. about their COVID-19 experience, 75% of respondents said they primarily accepted "cash and checks, making it the overwhelmingly preferred method of point of sale (POS) or vendor payments."

Cash is a tangible promise that your goods and services have value. It's easy to quantify and doesn't need rebooting if a computer system goes haywire. As such, it should be no surprise that cash is the most preferred payment method in the U.S.

If you're one of those businesses that regularly deals in cash transactions, the sudden reduction in coins can be hard to deal with. Suddenly, it's harder to make change for your customers, which in turn makes customers less than pleased with their checkout experience. In addition to a possibly negative experience, Joseph Yaffe, co-owner of Gainesville Coins, believes the shortage can have an impact in other ways.

"Small businesses are hit hard by the coin shortage because they may have to turn away paying customers if they cannot make change," he said. "It also hurts the most economically vulnerable consumers, many of whom operate in a largely cash economy. In turn, that means there's a reduction in overall demand for whatever product or service a given small business provides."

For businesses that specifically rely on coins, like laundromats, the coin shortage has had a direct impact on not only their bottom line, but how customers pay for the service. Rina White, owner of Laundry South Systems & Repair, said she's noticed some of these changes take hold with her clients in the southern part of the U.S.

"Our laundromat customers are starting to shift away from coin-based payment systems at their locations to entirely card-based and digital payment systems," she said

This switch to a more card-based payment method, which some experts believe is coming as a result of the pandemic anyway, could be one way many small businesses adapt to the issue if it persists. In fact, a global Visa study of small businesses found that 33% of respondents said they've "accepted less, or stopped accepting, cash since COVID-19." Approximately 41% of millennial small business owners were "significantly more likely" to have made the change compared to Gen X (31%) and baby boomers (21%).

Making such changes, however, may ultimately prove unnecessary. Both the U.S. Mint and the Board of Governors of the Federal Reserve System reported that the former has been operating at full production capacity since mid-June, minting more than 3.2 billion new coins in the first two months. As a result, they expect the nation to return to its normal pace of coin circulation as more businesses reopen. The mint expects to produce 1.65 billion coins per month through the end of the year.

"The coin shortage is only a temporary issue," said Yaffe. "[Coins] simply aren't moving around, which is what coins are intended to do."

Key takeaway: Though the national coin shortage may be a short-term problem, it's still affecting plenty of small businesses. As a result, some small business owners have either switched to card-based payments or looked for other payment methods.

What can you do if your business relies on coins?

If your business heavily relies on coins to conduct your transactions, any shortage of minted currency is going to be a problem. Though it may seem like things might get harder for you as circulation begins to return to some semblance of normalcy, there are some things you can do to alleviate some of the hardship.

According to the Board of Governors of the Federal Reserve System, businesses can address the issue by asking customers to pay with exact change, as well as "returning spare change to circulation."

As the government continues to ask the public to start spending their coins or depositing and exchanging them at banks, some businesses have adjusted with more creative measures. For example, regional convenience store chain Wawa recently began a promotion that lets customers exchange rolls of coins for cash like they would at the bank. The chain also joined other businesses like 7-Eleven in offering freebies in exchange for rolled coins. The grocery store chain Kroger has stopped giving coin change, instead offering to put that change on a loyalty card for future purchases.

Yaffe thinks small businesses can help by getting their customers involved more, urging that shoppers should "not hoard coins during the shortage because it exacerbates the problem."

"Customers should exchange their loose change for store credit or similar freebies," he said. "Though small business owners can also help by offering such discounts/freebies or by accepting more electronic payment platforms."