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Penny shortage strikes
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July 26, 1999: 12:32 p.m. ET
Piggy banks are the nemesis of the U.S. Mint; retailers get 'short-changed'
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NEW YORK (CNNfn) - You would think that, in a nation with an estimated 115 billion to 200 billion pennies, shortages would not be a problem.
Think again.
This year, in scattered spots all over the country, cash registers have sported hand-lettered signs asking customers to give exact change because retailers can't get enough pennies from banks. Meanwhile, in millions of homes, jars and piggy banks bulge with the copper coins bearing Lincoln's likeness.
"We don't have enough of them, and everyone has them," said Robert McCarthy, succinctly summing up the paradox of a plenitude, but paucity, of pennies.
Proximity holds no advantage
McCarthy is a spokesman at the Federal Reserve Bank of Philadelphia. The bank stands a block from a U.S. Mint coin factory, one of two in the United States that produces pennies (the other is in Denver), but the mint's proximity doesn't mean the Philadelphia Fed gets all the pennies it wants.
Occasionally, there aren't enough cents in circulation to meet demand. When that happens, one or more of the Federal Reserve's 12 regional banks, including the one in Philadelphia, are unable to give commercial banks all the pennies they order. Then commercial banks can't supply their retail-business customers with all the pennies they want, and that's when you see those hand-lettered pleas for pennies at coffee-shop cash registers.
Ironically, penny shortages often are signs of good economic times, while plenty of pennies signal turmoil.
Penny shortages struck this spring in Philadelphia and Fed officials believe they are about to happen in parts of the Southeast, especially in Atlanta and in Florida. Usually the pinch is first seen at banks.
In response, banks in some parts of the country are asking their employees to raid their own drawers, closets and jars for the good of the company. One is First Union, a bank holding company based in Charlotte, N.C. In response to the Fed's tightened supply, First Union asked employees to bring in pennies.
"So far, it seems to be working pretty well," spokeswoman Sarah Holden says.
Made - and then hoarded
The mint facilities in Philadelphia and Denver struck 3.6 billion pennies in the first four months of 1999, a 33 percent increase over the 2.7 billion pennies that were coined in the first four months of 1998. The mint is on track to strike more than the 10.2 billion pennies made in 1998.
It seems that for each shiny penny stamped at the Mint, someone squirrels away a red cent.
McCarthy theorizes that people just don't like to carry pennies. He said he walks out the door in the morning with nickels, dimes and quarters in his pockets, but pennies? "They're in my dresser," he said, "or in a jar."
It is believed that billions of pennies sit in jars and cans, on dresser tops, under car mats, behind couch cushions and in piggy banks. Not to mention the pennies in landfills or lying on sidewalks, where pedestrians don't bother to pick them up.
And who can guess how many pennies are tucked into penny loafers?
Neil Andre, a social worker in St. Louis, said that when he visits friends' homes, he invariably sees vases and jars filled with pennies. They always catch his eye: as director of Earth Angels, an urban environmental program for inner-city children, he organizes penny-collection drives as fund-raisers.
He asks his friends to give him the pennies in those vases and jars. "But I haven't had any takers," he said with a jovial laugh.
Cents given - or tossed - away
The children of Earth Angels have little trouble collecting pennies. They find them on sidewalks and get them from relatives. For some adults, giving away pennies is a convenient way to get rid of a nuisance coin. That's why Andre believes that penny hoarding is a boon to Earth Angels' fundraising.
"I think we're taking advantage of the penny shortage," Andre said, "because everyone has pennies. Everyone throws them into a bowl."
Earth Angels raises money not only with penny drives but by collecting aluminum cans (733,000 cans in the last year) and sometimes by the unorthodox method of combing through trash bins to find items to sell in rummage sales. Andre reports with bewilderment that one Dumpster yielded a box containing 300 pennies.
"Pennies get no respect," McCarthy said. "People don't hoard quarters, dimes and nickels, for the most part. The penny does not circulate. If I get a brand-new penny in change at a store, I might be just the second person to touch it. I'll pull it out of circulation if I keep it in a jar for two years."
In that scenario, if McCarthy is the second person to touch it, the cashier who handed it to him is the first.
Delay in filling orders
Penny pinches happen every two or three years, and no one knows why, said Allison Cline, spokeswoman for the Federal Reserve Bank of Dallas. The regional Fed banks can request more pennies, but it takes a couple of months to fill the order, "so if there's a big rush we have to get pennies from the mint and that's where the holdup is," she says.
It takes a while to push pennies through the production pipeline. Penny blanks -- strips of copper-plated zinc -- are made in factories in Greeneville, Tenn., and LaSalle, Ill., and shipped to the mint facilities in Denver and Philadelphia. There, stamping machines produce the coins by the millions. They are sent in $80,000 lots by armored truck to Federal Reserve regional banks. Commercial banks and credit unions arrange for and pay for transportation to their branches.
Right now, the Federal Reserve Bank in Atlanta is carefully parceling out pennies to commercial banks in its area, which encompasses Florida, Georgia, Alabama and parts of Louisiana, Mississippi and Tennessee. Pierce Nelson, spokesman for the Federal Reserve Bank in Atlanta, says he wouldn't quite term it a penny shortage, "but there has been a definite uptick in demand for pennies."
Businesses aren't yet complaining of a paucity of pennies. "I haven't noticed any shortage," says Ann Thomas, manager of Nature's Way, a lunch shop in North Palm Beach, Fla. "We go to the bank in the morning and get our two or three dollars' worth every day."
Up the street from Nature's Way, at the Uncommon Grounds Espresso Bar, if you hand the clerk $20.20 for a $5.19 order of a double breve and piece of banana nut bread, you'll get $15 back instead of $15.01. No penny. It's simply understood, without being spoken, that prices are rounded, especially during the shop's busy times.
The fans of the penny
So, have pennies outlived their usefulness? No, said Mark Weller, executive director of Americans for Common Cents, a nonprofit organization dedicated to making sure Congress doesn't get rid of pennies.
It is funded largely by zinc producers and the makers of penny blanks.
"The real question is: What's the alternative to the penny, and that's rounding transactions to the nickel," Weller said. He points to polls sponsored by the organization that have concluded that most Americans don't want to round cash transactions to the nickel because they believe that retailers would raise prices.
If consumers value pennies in good economic times like now, they treasure the coins even more when the economy goes south. When the nation is awash in pennies again, watch out, Weller warns: "When the economy begins to slow, you see people putting coins back into circulation," he says. "They're pulling them out of drawers, closets, jars, and spending them."
--by Bank Rate Monitor for CNNfn
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