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US Coin Shortage Highlights Implications Of Moving Toward A Cashless Society05:28
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The change drawer of the cash register at Symbiote Collectibles in West Reading, Pennsylvania, on July 9, 2020. (Ben Hasty/MediaNews Group/Reading Eagle via Getty Images)
The change drawer of the cash register at Symbiote Collectibles in West Reading, Pennsylvania, on July 9, 2020. (Ben Hasty/MediaNews Group/Reading Eagle via Getty Images)

Back in the summer, you probably noticed signs in stores asking you to pay with exact change because of a national coin shortage. The Federal Reserve even formed a Coin Task Force to address the problem.

But it's December, and those signs are still posted despite efforts to get more coins rolling through the economy.

For those of us who need nickels, quarters, dimes and dollars rattling around in our pockets, professor Jay Zagorsky of Boston University’s Questrom School of Business says the shortage underscores the broader implications of the move toward a cashless society.

Many people have stopped using physical currency during the pandemic because of concerns that cash and coins could spread germs and even the coronavirus, he says.

“Lots of people, lots of different hands, touch cash and touch coins, so because people think it's cleaner, because they've only touched their credit cards, they've only touched their debit cards, lots of people don't want to be using cash during the pandemic,” he says.

When the surge in coronavirus cases this spring sparked stay-at-home orders, coin manufacturing shut down, Zagorsky says. Banks closed the doors to their lobbies, prohibiting people from depositing coins, and fewer people dumped coins into Coinstar machines at supermarkets.

“There's about $48 billion worth of coins that are circulating through society at any given point in time, and during the pandemic, new coins basically stopped because the [U.S Mint] shut down,” he says. “So for a whole bunch of reasons, people still wanted to use coins, but very few coins were being recirculated through society.”

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The shortage also caused a lot of problems for businesses, Zagorsky says. When people paid with cash, many businesses didn’t have any change to give customers.

“This is a big problem because about [6% to 7%] of society is unbanked,” he says. “Unbanked means they don't have credit cards, they don't have debit cards. They use cash.”

The U.S. Mint has been working overtime since the spring, and it's now on track to mint the most coins it has in 20 years. Even with the shutdown, the Mint has produced almost 2.7 billion quarters this year, up from 1.6 billion quarters in 2019, Zagorsky says.

The coin crisis has revealed just some of the consequences that can occur when people use less cash and coins, and rely on credit cards, Apple Pay or even Bitcoin. Still, Zagorsky says retailers, banks, tech companies and the government are all pushing the U.S. economy away from physical currency.

“Retailers really enjoy a cashless society because when people pay with cash, they have to count those coins. They have to get them back to the bank. It's expensive for them,” he explains. “Banks love a cashless society because they make money on loans, and the more often you use a credit card, the more often banks get a cut of what you spend.”

But moving toward a cashless society presents equity issues for those who rely on cash to make purchases. For example, Zagorsky says people who are unbanked have to purchase Amazon gift cards with cash in order to buy things on the popular e-commerce site.

“Let's say it's a $50 gift card … you can spend up to $50, but what if you're going to purchase something [that costs] like $42?” he says. “That means Amazon's holding on to $8 until you decide to buy something else. And for some of the poor people in society, you know, losing $8 here, $5 there, that could be the difference between having dinner or not having dinner at night.”

Another issue is that so many Americans are dealing with mountains of debt. The average American is about $90,000 in the hole, according to the credit bureau Experian.

People tend to spend more when they use digital currencies or credit cards instead of cash because it reduces the pain point, Zagorsky explains. If we move toward a cashless society, people will spend more and save less.

“When you have to pull a wad of bills out, there's a moment of pain. However, if you just slap down a credit card, you're going to pay maybe next month or months later if you decide not to pay off your credit card bill in full,” he says. “And this is the exact same reason why casinos use chips instead of cash, because it doesn't feel like it's real anymore.”

Despite the implications, Zagorsky says the economy is relying less and less on physical currency. That’s why he tries to use cash for at least some of his purchases.

“We're going toward a cashless society no matter how often I speak on the radio and say, 'You know, it's OK if we slow down a little bit.' Because there's a whole bunch of problems when we go to a purely cashless society,” he says. “Let me be very clear, I use credit cards, but I don't use credit cards for everything.”


Samantha Raphelson produced and edited this interview for broadcast with Tinku Ray and Bruce Gellerman. Raphelson also adapted it for the web.

This segment aired on December 4, 2020.

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