Corona Daily 406: Change Please

Many places in the USA are opening up. Finding a parking place is a little easier, but there is no change to feed into the parking meter. Americans can see Coke in the vending machine, but without change they can’t buy it. Many supermarkets have made shopping trolleys free; the requirement to drop a coin to unlock them is waived. But the checkout lady may offer the customer candy or gum instead of change.

USA is facing a severe coin shortage as a result of the pandemic.

In March, Americans saw TV news about the Chinese and Koreans giving banknotes UV light treatment, and then placing them in quarantine for fourteen days. Coins, the health experts said, were even more dangerous. The virus lingers much longer on metal. Americans chose to be safe. Coin circulation came to a halt.

US Mint produces coins in Denver and Philadelphia. To protect the mint workers, production was cut down drastically.

The Federal Reserve is responsible for managing and distributing coins. They supply coins to banks, who in turn supply them to retailers, who give it as change to the customers, who feed them into the vending machines, parking meters, in the amusement park attractions. This circular process almost stopped. Coupled with the mints not producing enough; pennies, nickels, dimes and quarters are not easy to find.

From 15 June, Federal Reserve has officially started rationing coins. The official term is ‘strategic allocation of coin inventories’. Banks are getting about 40% of what they need. Rural banks are suffering more. Bankers are worried about a possible news headline: “banks run out of money”. The Federal Reserve has assured them coins will make a comeback.

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In Europe, millions are moving to digital payments. Debit and credit cards are cashless. But for obvious reasons, the next step is contactless payments. Apple pay, Google pay, PayPal are flourishing. Online shopping has shot up. Many elderly people are signing up for online banking for the first time.

Making the economy cashless even in developed countries is not as easy as we imagine. In the UK, 1.23 million adults don’t have bank accounts. Only 40% of those aged 65+ have internet access via smartphone. All over the world, the poorest, illiterates, technical illiterates (usually old) prefer cash. Some of them earn in cash. It is easier to budget expenses; you can’t spend more cash than you have. Cash offers anonymity to honest people as well.

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Australia, on the other hand, is planning to produce fewer physical coins. There is less demand for them now. Since March, ATM withdrawals have gone down by 30%. Reserve Bank of Australia had to produce 2.5 billion extra banknotes, because Australians began withdrawing their savings.

In the developing countries of Asia and Africa, inflation had already made many coins obsolete. A likely threat in the coming months is a run on the banks. People tend to hoard cash as a precaution. Like in Australia, they will need to withdraw heavily from their bank accounts. If 2-3 major banks collapse, trust in the entire banking system gets eroded.

Saving the country’s banking system from bankruptcy will be the biggest challenge for these governments.

Ravi