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| Author: | Kahn, C. M. Roberds, W. |
| Title: | Demandable debts as a means of payment: Banknotes versus checks |
| Journal: | Journal of Money, Credit and Banking
1999 : AUG, VOL. 31:3 / II, p. 500-525 |
| Index terms: | Banking Models USA |
| Freeterms: | Financial instruments Payments |
| Language: | eng |
| Abstract: | In this paper it is examined whether transactable forms of privately issued, demandable debt are better used as "banknotes" or "checks." The distinction btw. the two is that a check must be redeemed by the issuing bank with each use whereas a banknote can circulate. It is found 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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