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Though checks' popularity is now waning in favor of electronic payments, checks were, for much of the twentieth century, the most widely used noncash payment method in the United States. How did such a relatively inefficient form of payment become so dominant? This article traces the historical evolution of the check, focusing on its relation to complementary and competing payment technologies. Originating in the eastern Mediterranean during the first millennium as a convenient form of payment between local merchants, checks became more versatile through the development of negotiability in sixteenth-century Europe. The suppression of banknotes in eighteenth-century England further promoted the use of checks, in the United States, nineteenth-century legislation discouraged other payment methods and eventually led to a nationwide check payment system. In the twentieth century, under the Federal Reserve's leadership, checks expanded rapidly and became the nation's default payment method. The authors discuss some persistent historical themes surrounding checks: checks' ease of use, which provides advantages over other payment methods but creates risk to businesses and banks; checks' sophistication, which evolved through centuries of legal precedent and operational experimentation; and checks' high costs relative to other forms of payment. Checks' traditional dominance of the U.S. payment system, the authors conclude, resulted from historical happenstances. These events gave the check relative advantages that are only now being overcome by electronic payment technologies. JEL classification: E42, G21, N10 Key words: checks, payments, Federal Reserve, banknotes, bills of exchange, In the early eleventh century, an Iranian traveler named Nasir-i Khosrau visited the city of Basra (in present-day Iraq). There he recorded one of the first descriptions of a form [...]

1. INTRODUCTION Electronic checks, cell phones, and speed-through lanes at toll booths are just a few examples of new payment methods recently introduced to the market. Based on computer technology, [...]

The history of money is marked by innovations that have expanded the role of 'inside money'--money created by the private sector. For instance, the past few years have seen the development of several types of on-line payment arrangements, some of which have been dubbed 'on-line currencies.' This article examines the likely success or failure of on-line currencies by means of a historical analogy. The discussion compares the introduction of on-line currencies to the debut of the bearer banknote, the direct predecessor to modern currency, in London in the late 1600s. The key innovation of the earliest banknotes, the authors argue, was to provide final payment under circumstances in which extant payment systems could not. The discussion considers how on-line currencies may be able to fill the same role in the context of e-commerce. The authors note some conspicuous similarities between on-line currencies and physical banknotes. Both payment methods emerged to meet the need to conduct remote transactions (via the Internet or across physical distance), both face the risk of buyer-side fraud, and both have responded to the need for a new payment technology to allocate this risk. The authors stop short of calling on-line currencies 'virtual banknotes' because it remains to be seen whether on-line currencies will gain sufficiently widespread acceptance to become a circulating medium of exchange., Cash is increasingly being displaced by private forms of payment. Currently the U.S. economy functions with a minimal stock of cash, probably amounting to less than 2.6 percent of its [...]

Payment finality is critical to decentralized exchange. By specifying how the transfer of one type of claim extinguishes another, the rules governing finality minimize opportunities for default along credit chains [...]

In market economies, payments systems provide certainty of valuation in exchange. People selling goods or services expect money in return, where money means either currency or a financial claim that is worth a fixed amount of currency. To provide this certainty, a successful payments medium has to overcome various risks that are a natural part of the payment process., An important risk associated with payments systems is the risk of fraud. Fraud can occur because purchases of goods typically involve at least three parties. The first party, a buyer [...]

To most American consumers, the word payment is synonymous with 'cash, check, or charge.' this familiar triad is now being augmented, however, with a variety of alternative payment methods, including [...]

Checks continue to dominate the market for noncash retail payments in the United States. Each year, U.S. residents write between 65 billion and 70 billion checks, an average of one check per business day per resident. This dependence on checks is unique among developed countries. It is also extremely costly: by switching from checks to other forms of payment, U.S. residents would save between $60 billion and $100 billion dollars per year. Why do checks continue to see such wide use within the United States? Economists' explanations have focused on check 'float,' which is the interest earned by a check writer between the time a check is received as payment and the time the payment is settled. This article explains how check float arises within the U.S. payment system and how float can discourage the adoption of other types of payment. The authors also consider several proposals for reforming the U.S. payment system. While these proposals hold some promise, they are also subject to criticisms. The authors conclude that over the near future, policymakers will need to weigh the drawbacks of these proposals against the benefits of a faster transition to a more efficient payment system., AMERICANS COMMONLY THINK OF THEMSELVES AS LIVING IN A TECHNOLOGICALLY ADVANCED NATION. ACCORDING TO STANDARD MEASURES SUCH AS COMPUTERS PER CAPITA OR INTERNET USAGE, THE UNITED STATES RANKS AT OR [...]

MOST PEOPLE ARE FAMILIAR WITH RETAIL PAYMENTS SYSTEMS SUCH AS CHECKS AND CREDIT CARDS. LESS FAMILIAR ARE WHOLESALE PAYMENTS SYSTEMS, WHICH CONSIST OF ELECTRONIC NETWORKS THAT ARE USED FOR SENDING LARGE SUMS AMONG BANKS.(1) WHOLESALE PAYMENTS SYSTEMS SERVE TWO IMPORTANT PURPOSES. FIRST, BANKS OFTEN USE THESE SYSTEMS TO SETTLE TRANSACTIONS MADE USING RETAIL PAYMENTS SYSTEMS.(2), Second, banks use these systems to clear and settle large-value transactions, primarily those associated with trading in the financial markets.(3) Various wholesale payments systems employ different rules for settling payments. [...]