The Pandemic’s Impact on Coins in the U.S. and New Details on FedNow

Sep 2, 2020  — Beth Provenzano

Coins are in short supply due to COVID-19, and we have joined with merchant trade association partners to request the Federal Reserve and Department of Treasury increase their public awareness efforts to #getcoinmoving. Meanwhile, the Federal Reserve held a symposium in August where Governor Brainard and other officials shared more details about their plans for FedNow.

Educating Consumers on the Coin “Shortage”

COVID-19 has undoubtedly impacted all aspects of Americans’ lives, and this dramatic shift in how we all live has led to an unexpected outcome: a coin shortage. Not only are Americans staying in more, and as a result, transitioning their spending to online, card not present transactions; but also, the United States Mint had limited operations this spring due to safety measures.

In July, the Federal Reserve (Fed) convened the U.S. Coin Task Force of governmental officials and industry partners for a limited time and scope to identify, implement, and promote actions to reduce the problems caused by the disruption to coin circulation.

The Department of Treasury, U.S. Mint and Federal Reserve recently started a public awareness campaign in the hopes of educating consumers about using their coins at retailers, restaurants, and in banks. Merchants have also taken their own actions in educating their customers about the issue by posting signs asking for exact change, rounding up check totals to include a donation to charity, and offering incentives to use coins.

MAG, along with other merchant trade associations, sent a letter to Treasury Secretary Mnuchin and Federal Reserve Board Chairman Powell asking them to increase their educational efforts for American consumers. The U.S. Mint says that they will produce more coins this year than any other year, and that this is truly a circulation problem. If Americans spend or recycle their coins (at financial institutions or in coin kiosks), it will help alleviate the problems due to the lack of circulation. The Fed’s position is that when the economy moves to recovery and more businesses reopen, coins will flow into retail and banks’ channels and thus ultimately make their way to the Fed, allowing for a rebuilding of coin inventories.

Please let us know how your company is handling the coin circulation challenges. We will continue our collaborative efforts with merchants, trade associations and industry partners, as well as advocate on your behalf with the appropriate government officials and provide updates at various MAG committee meetings in the coming months.

Federal Reserve Officials Discuss FedNow

At a symposium in early August, Federal Reserve Governor Lael Brainard, Kansas City Federal Reserve President Esther George, and Boston Federal Reserve First Vice President Ken Montgomery addressed recent developments with FedNow, the Federal Reserve’s faster payments service. Brainard said the current pandemic has highlighted the need for the service, and instant access to funds will provide options for millions of American families and businesses that are struggling while waiting for checks to clear.

FedNow’s offering of faster payments services will provide a competitive option to the privately-owned services, such as The Clearing House’s RTP network. Montgomery said the Fed’s service will provide redundancy and resiliency to the private offerings.

While various stakeholders have pushed for quick implementation, George acknowledged that they are trying to get the baseline infrastructure in place quickly, and they are currently working on their technology strategy.

FedNow, a real-time gross settlement system (RTGS), will operate 24x7x365.  The Fed says transfers will occur in only seconds and will be push, or credit, payments.

According to the Fed, the initial launch will include:

  • Core clearing and settlement capabilities to support a range of transaction types and use cases
  • Use of the widely accepted ISO® 20022 standard and other industry best practices to support interoperability
  • Features that will support flexible adoption, including support for the use of service providers and correspondents and an option to enroll as a “receive-only” participant
  • Value-added features including request-for-payment capability and tools to support participants in their handling of payment inquiries, reconcilements and certain exceptions
  • Features to enhance experience for financial institutions by broadcasting participant availability to support their transition to 24x7x365 operations, a user interface to support data needs and the ability to have access to balance information on weekends
  • Features to support payment integrity and data security and tools to help financial institutions combat fraud, such as a transaction value limit and reporting features
  • A liquidity-management tool that will allow participants and others to transfer funds to each other to support the liquidity needs of instant payments

The Fed indicated they plan to launch additional features after the initial deployment.  MAG has been involved in the Fed’s faster payments efforts and will continue our engagement with them to educate and inform officials and fellow payments system stakeholders on merchants’ point of view. 

The Merchant Advisory Group

Driving positive change and innovation in the payments industry that serves the merchants interest through collaboration, education, and advocacy.