|18 March, 2020

Toilet paper and bank notes aren't so different

Consumers just aren't really aware of the processes that put food on their table, or tissue in their bathrooms

Workers ration toilet paper to one package per Costco member in an effort to stem hoarding due to fears of coronavirus, at a Costco store in Toronto, Ontario, Canada March 14, 2020.

Workers ration toilet paper to one package per Costco member in an effort to stem hoarding due to fears of coronavirus, at a Costco store in Toronto, Ontario, Canada March 14, 2020.

Reuters/Chris Helgren

NEW YORK - Toilet paper printed to look like money goes for around $6 a roll on Amazon.com. Sometimes, the two kinds of paper aren't so different. In the coronavirus pandemic, consumers are hoarding absorbent bathroom tissue. But the dash for bank notes during financial panics shares similar roots.

An irrational bank run – when a bank has no underlying problems – typically has at least three ingredients. First, an event or rumor that precipitates the panic. Then, the sight of impatient customers stampeding to withdraw cash, which causes others to follow. And third, underlying the others, is a patchy understanding of how the system fits together. When depositors know two banks aren’t linked, bank runs tend not to spread, according to a study for the European Central Bank in 2014.

Global runs on toilet paper have unrolled in the same way. Initially, shoppers in Hong Kong fretted that shortages of Chinese supply were imminent, exacerbated by rumors that factories might start making surgical masks instead. When some people started to hoard, others copied them.

It's arguably the third element that led to similar scenes as far away as the United States and Australia. Consumers just aren't really aware of the processes that put food on their table, or tissue in their bathrooms. Even when there’s little to worry about – Procter & Gamble, for example, produces all of its U.S. paper products domestically – they see a video of something in another place, and worry they might miss out, too. It’s an unintended consequence of globalization. Half of Americans rarely or never ask where their food came from, Michigan State University found in a 2017 survey.

In banking, there’s a solution: government intervention. Many countries offer deposit insurance, a pledge to step in if banks can’t return a customer's funds. It works: Five banks have failed in the United States in the past year, according to the Federal Deposit Insurance Corp, without major incident.

The possibility of governments backstopping essential household goods is still remote. And there shouldn't be any need – there are enough rolls to go around, if not today then tomorrow. In contrast, bank runs can have wide-ranging grave consequences very quickly. Luckily for governments, money is theoretically in infinite supply and doesn't require warehouses. And at a push, the paper kind can always be used as toilet tissue.

CONTEXT NEWS

- Retailers worldwide have warned that hoarding toilet paper, cleaning supplies and food staples is fueling shortages and stoking fear amid the rapid spread of the new coronavirus. Amazon.com, the biggest U.S. online retailer, said it sold out of many household staples after orders spiked.

- Runs on toilet paper have been reported from Hong Kong to Australia to Britain. In the United States, retail giants such as Walmart, Publix and Kroger have set restrictions on purchases, as well as on Lysol sanitizing wipes and other in-demand products.

- Shares in Kimberly-Clark, which makes sanitary products, have declined 5% in the past month. The S&P 500 Index has fallen 29% over the same period, as of the market’s close on March 16.

(Editing by Richard Beales and Amanda Gomez)

© Reuters News 2020