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IPFS News Link • Federal Reserve

COVID-Crunch? Fed Begins Rationing Coins As Americans Horde Cash

• Zero Hedge - Tyler Durden

Having closed the US Mint and halted production (blaming COVID-19)  after a surge in demand for gold and silver coins, and warned of the danger of using bills (once again blaming the pandemic and choosing to "quarantine" cash for the sake of Americans' health), Fed Chair Powell quietly admitted to lawmakers this week that The Fed will be rationing coins as the circulation of coins across the US economy ground to a halt due to the pandemic.

"What's happened is that with the partial closure of the economy, the flow of coins through the economy ... it's kind of stopped," Powell told lawmakers.

He said the shortage was due to the mass business closures that prevented people from spending their coins, as well as a lack of places that are open where people can trade coins for paper bills. 

"We've been aware of it, we're working with the Mint to increase supply, we're working with the reserve banks to get the supply to where it needs to be," Powell said, adding he expected the problem to be temporary.

Of course, Powell added that the problem would only be temporary, given the economy was reopening and establishments that traditionally deposit their cash into banks were beginning to restart operations.

Until the shortage is resolved, the Fed is taking the unusual step of limiting the amount of quarters, dimes, nickels, and pennies sent to banks "to ensure a fair and equitable distribution of coin inventory." They issued a statement explaining the decision:

Temporary coin order allocation in all Reserve Bank offices and Federal Reserve coin distribution locations effective June 15, 2020

The COVID?19 pandemic has significantly disrupted the supply chain and normal circulation patterns for U.S. coin. In the past few months, coin deposits from depository institutions to the Federal Reserve have declined significantly and the U.S. Mint's production of coin also decreased due to measures put in place to protect its employees. Federal Reserve coin orders from depository institutions have begun to increase as regions reopen, resulting in the Federal Reserve's coin inventory being reduced to below normal levels. While the U.S. Mint is the issuing authority for coin, the Federal Reserve manages coin inventory and its distribution to depository institutions (including commercial banks, community banks, credit unions and thrifts) through Reserve Bank cash operations and offsite locations across the country operated by Federal Reserve vendors.

The Federal Reserve is working on several fronts to mitigate the effects of low coin inventories. This includes managing the allocation of existing Fed inventories, working with the Mint, as issuing authority, to minimize coin supply constraints and maximize coin production capacity, and encouraging depository institutions to order only the coin they need to meet near?term customer demand. Depository institutions also can help replenish inventories by removing barriers to consumer deposits of loose and rolled coins. Although the Federal Reserve is confident that the coin inventory issues will resolve once the economy opens more broadly and the coin supply chain returns to normal circulation patterns, we recognize that these measures alone will not be enough to resolve near?term issues.

Consequently, effective Monday, June 15, Reserve Banks and Federal Reserve coin distribution locations began allocating coin inventories. To ensure a fair and equitable distribution of existing coin inventory to all depository institutions, effective June 15, the Federal Reserve Banks and their coin distribution locations began to allocate available supplies of pennies, nickels, dimes, and quarters to depository institutions as a temporary measure. The temporary coin allocation methodology is based on historical order volume by coin denomination and depository institution endpoint, and current U.S. Mint production levels. Order limits are unique by coin denomination and are the same across all Federal Reserve coin distribution locations. Limits will be reviewed and potentially revised based on national receipt levels, inventories, and Mint production.