We’ve all heard about people hitting the stores in droves to rid the world of toilet paper and hand sanitizer as they “waste away in Coronaville,” as Jimmy Buffet might be tempted to say.
But there’s a reportedly a new nationwide shortage—coins. Yet, according to “Forbes.com,” the problem is more of a circulation disruption than a literal coin shortage.
Forbes remarked: “Some stores are claiming there’s a coin shortage because US Mint closures have affected the coin supply . . . and [the stores] don’t have enough change on hand for customers. But does this mean that the US is actually running out of coins?”
On June 11, the Federal Reserve, the nation’s for-profit, private central bank, acknowledged that the COVID-19 pandemic has disrupted “normal circulation patterns for US coin,” adding that, in the last few months, “coin deposits from depository institutions to the Federal Reserve have declined significantly and the US Mint’s production of coin also decreased due to [COVID-19 precautions].”
Notably, Yiming Ma, an assistant professor in Columbia Business School’s finance division, said that claims of a coin “shortage” aren’t entirely accurate. “A disruption is a better way to describe it,” Ma was quoted by Forbes as saying. “It’s reflecting the fact that, once circulation is resumed, these disruptions will ease out.”
Business outlets that primarily take coins, such as vending machines, self-help car washes and laundromats, have seen a reduction in operations, largely due to COVID-19 stay-at-home measures. Since these businesses play a significant role in getting coins back to banks so they can be redistributed back into the economy, the quantity and velocity of the coin flow have waned.
However, from a certain perspective, there’s always been a money shortage. US currency and coin comprise significantly less than half of the overall national money supply in circulation—the rest being demand deposits borne of commercial bank loans with interest charges attached.
Interestingly, the Federal Reserve System issues only the currency. The US government — via the US Mint, a division of the Treasury — issues the coinage. The Fed confirms this important distinction thusly: “Unlike currency, the United States Mint is the issuing authority for coins.”
“The Fed has to pay the US government full face value for the coins,” banking author and anti-foreclosure coach Mickey Paoletta told this writer. “Currency is different. The government only receives a small percentage from the Fed for each unit of currency its Bureau of Engraving prints, regardless of each note’s face value. But the government mints coins for less than face value and receives full face value in return from the Fed. That’s called seigniorage, shown in the Fed’s literature ‘The Federal Reserve: Purposes and Functions, 1994.’”
Thus, the coins that are being sidelined under the “corona crackdown” are a somewhat more sovereign component of the money supply from the perspective of benefitting the people and their government under commonsense economics, although their proportional supply in the economy is low and has been low for a long time.
According to the Richmond, Va., Federal Reserve branch, in 2019 there were $47.2 billion worth of coins in circulation as part of the total M1 money supply estimated at $3.964 trillion (just shy of $4 trillion) as of November 2019. Of that, $1,705 trillion was currency. The rest was largely demand deposits, or “checkbook” money, at banks, credit unions etc. Traveler’s checks play a minor role. M1 is all the active money used daily in transactions.
Interestingly, our total productive US output (GDP) in 2019 was $21.43 trillion, dwarfing the M1 money supply. So, the real story is that there’s a massive shortage of money in general, coin and currency, in proportion to what rolls off the production lines domestically, combined with imports. Based on these numbers, the US could easily increase its money supply rather dramatically, since production is not the problem. Having enough purchasing power to access and liquidate production is the real issue. You simply cannot run a $21 trillion economy on $4 trillion in M1.
Perhaps the Treasury should boost the coinage supply as a percentage of the money supply and also boost the general money supply as all-things-COVID return to normal. This could reduce the percentage of the money supply that’s loaned into existence as interest-bearing debt by the commercial banks in the form of demand-deposit accounts, and reduce credit card dependancy. That’d be the “populist” thing to do—a “new normal” we could all relish.
Mark Anderson is a veteran journalist who divides his time between Texas and Michigan. Email him at truthhound2@yahoo.com.
From The Progressive Populist, September 1, 2020
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