During the year, there have been a few articles written speculating why the number of circulating coins have decreased. On article said that the “bank hates your coins” and looks to deter you from cashing them in. Another article presented the case for credit cards and other means of electronic transactions that is cutting into coin production.
Both articles present a case for the lower demand for coins as being the reason for these acts. While the demand for coins may be down and the Mint’s production is also down, both articles do not take into consideration the inventory and movement of coin inventory by the Federal Reserve.
How the Federal Reserve manages inventory has been the subject of investigation by the Government Accountability Office (GAO). In the report published in March 2008, the GAO found that while the various Federal Reserve branches have been able to meet the demand for coins to enter commerce, the GAO questions whether the Federal Reserve properly manages its inventory.
One suggestion that the GAO acknowledges that the decline in coin production may be a result of the mismanagement of inventory by the Federal Reserve when they wrote that the “data from one major coin recycling company, the value of coins returned to circulation through recycling grew from approximately $1 billion in 2000 to $2.6 billion in 2006.” With more coins in circulation, the need for new coins to meet demand may be lowered.
Further, as part of inventory management, it was acknowledge that the Federal Reserve banks “look for opportunities to transfer coins within their district to meet projected demand. For example, one Reserve Bank office may want additional coins, while another office may have more coins than it wants to hold to meet short-term demand. The Reserve Bank office works with the coin terminal operators to move the coins as needed.” This will reduce the need to order new coins from the US Mint.
The reports finds that the Federal Reserve does not grasp the concept of an optimal inventory with some coin terminals having lower supply than others. Even with inventory goals, the Federal Reserve does not properly manage to those goals leaving inventories in a state of flux. The report even suggests that the spike in coin production in 2001 was not a result of better economic times, but a mismanagement in ordering for circulated coins and overstating the demand for the 50 State Quarter program. This was alluded to in industry publications.
There have been anecdotal reports saying that bright early date 50 State Quarters are being found in circulation. This could be from people who bought rolls and put them back into circulation with the down economy and the Federal Reserve clearing out the back of the coin storage rooms. Additionally, companies like Coinstar has announced higher earnings based on increased usage of their machines, which places more coins back into circulation.
And none of this considers the effect on the production of currency.
With more money in circulation and the mismanagement of inventory by the Federal Reserve, concluding that the reduction in production by the US Mint because of the increased use of credit cards is questionable. It may be one factor, but not the single reason.