Demandable Debts as a Means of Payment: Banknotes versus Checks
AbstractWe examine whether transactable forms of privately issued, demandable debt are better used as "banknotes" or "checks." The distinction between the two is that a check must be redeemed by the issuing bank with each use whereas a banknote can circulate. We find that the answer to the question depends on the cost of early redemption. If this cost is small, banknotes will not circulate so the question is moot. If this cost is large, incentive problems may prevent the circulation of banknotes. For intermediate values of the early redemption cost, banknotes will be preferred over checks.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 31 (1999)
Issue (Month): 3 (August)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
Other versions of this item:
- Charles M. Kahn & William Roberds, 1999. "Demandable debt as a means of payment: banknotes versus checks," Proceedings, Federal Reserve Bank of Cleveland, pages 500-530.
- Charles M. Kahn & William Roberds, 1998. "Demandable debt as a means of payment: banknotes versus checks," Working Paper 98-5, Federal Reserve Bank of Atlanta.
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