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In the summer, you’ve probably noticed signs in stores asking you to pay at the exact exchange rate due to a shortage of national currencies. The Federal Reserve has even formed a Coin Task Force to address the problem.
But it’s December, and those signals are still being posted despite efforts to get more coins circulating in the economy.
For those of us who need pennies, quarters, nickels, and dollars buzzing in our pockets, Professor Jay Zagorsky of Boston University’s Questrom School of Business says the shortage underscores the broader implications of moving to a cashless society.
Many people stopped using physical currency during the pandemic due to concerns that cash and coins could spread germs and even the coronavirus, he says.
“Many people, many different hands, touch cash and coins, so why do people think it’s cleaner, because they only touched their credit cards, they only touched their debit cards, many people don’t want to use cash during the pandemic, “he says.
When the spate of coronavirus cases this spring sparked house orders, coin production was shut down, Zagorsky says. Banks have closed the doors to their lobbies, banning people from depositing coins, and fewer people dumped coins into Coinstar machines in supermarkets.
“There are about $ 48 billion worth of coins circulating in society at any given time and during the pandemic, the new coins basically stopped because [U.S Mint] turn off, “he says.” So, for a variety of reasons, people still wanted to use coins, but very few had been put back into society. “
The shortage has also caused a lot of problems for companies, says Zagorsky. When people paid cash, many companies didn’t have any changes to offer customers.
“This is a big deal because about [6% to 7%] the company has no bank, “he says.” Unbanked means they don’t have credit cards, they don’t have debit cards. They use cash. “
The United States Mint has been working overtime since spring and is now well on its way to minting as many coins as it has in 20 years. Even with the shutdown, the Mint has produced nearly 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. However, Zagorsky says retailers, banks, tech companies, and the government are moving the U.S. economy away from physical currency.
“Retailers really appreciate a cashless society because when people pay in cash, they have to count those coins. They have to take 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 share of what you spend. “
But moving to a cashless society presents equity issues for those who rely on money to shop. For example, Zagorsky says that people without a bank have to buy Amazon gift cards for 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 buy something [that costs] like $ 42? “he says.” That means Amazon will hold $ 8 until you decide to buy something else. And for some of the poor people in society, you know, losing $ 8 here, $ 5 there, could be the difference between having dinner or not having dinner in the evening. “
Another problem is that so many Americans have to deal with mountains of debt. The average American is about $ 90,000 in the hole, according to the Experian credit bureau.
People tend to spend more when they use digital currencies or credit cards instead of cash because it reduces the sore point, Zagorsky explains. If we move towards a cashless society, people will spend more and save less.
“When you have to take out a wad of bills, there is a moment of pain. However, if you slam a credit card, you will pay perhaps next month or months later if you decide not to fully pay off your credit card bill, “he says.” And that’s the same reason casinos use chips instead of. cash, because it no longer feels real. “
Despite the implications, Zagorsky says the economy relies less and less on physical currency. That’s why he tries to use cash for at least some of his purchases.
“We’re going to a cashless society, no matter how often I talk on the radio and say, ‘You know, it’s okay if we slow down a little.” Because there are a lot 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 broadcast interview with Tinku Ray and Bruce Gellerman. Raphelson has also adapted it for the web.
