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The evolution of the check as a means of payment: a historical survey

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Author Info
Stephen Quinn
William Roberds

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Abstract

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.

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Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2008)
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Handle: RePEc:fip:fedaer:y:2008:n:v.93no.4

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Keywords: Checks;

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References listed on IDEAS
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  1. Daniel D. Garcia-Swartz & Robert W. Hahn & Anne Layne-Farrar, 2006. "The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics," Review of Network Economics, Concept Economics, vol. 5(2), pages 175-198, June. [Downloadable!]
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  3. Geoffrey R. Gerdes & Jack K. Walton II & May X. Liu & Darrel W. Parke, 2005. "Trends in the use of payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Spr, pages 180-201. [Downloadable!]
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    Other versions:
  5. Stephen F. Quinn & William Roberds, 2003. "Are on-line currencies virtual banknotes?," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-15. [Downloadable!]
  6. Ronald W. Michener & Robert E. Wright, 2005. "State "Currencies" and the Transition to the U.S. Dollar: Clarifying Some Confusions," American Economic Review, American Economic Association, vol. 95(3), pages 682-703, June. [Downloadable!]
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  11. Quinn, Stephen, 1997. "Goldsmith-Banking: Mutual Acceptance and Interbanker Clearing in Restoration London," Explorations in Economic History, Elsevier, vol. 34(4), pages 411-432, October. [Downloadable!] (restricted)
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  16. Jeffery M. Lacker & Jeffrey D. Walker & John A. Weinberg, 1999. "The Fed's entry into check clearing reconsidered," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-32. [Downloadable!]
  17. John H. Munro, 1998. "English 'Backwardness' and Financial Innovations in Commerce with the Low Countries, 14th to 16th centuries," Working Papers munro-98-06, University of Toronto, Department of Economics. [Downloadable!]
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  21. Edward J. Green, 2003. "Economic perspective on the political history of the Second Bank of the United States," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 59-67. [Downloadable!]
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