Eli5. What stops a 1000 dollar check made out to cash from being used as a 1000 dollar bill.

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A bit confusing but what I mean by this is say, a guy writes a 1000 dollar check (made out to cash)to buy a quad. The guy receiving the check, instead of cashing it out, uses the original check to then go buy his own quad and so on.

In: Economics

14 Answers

Anonymous 0 Comments

Some businesses do not accept checks as you can cancel a check or lie about actually having the money but most all businesses accept cash.

The guy in your scenario is probably being cautious of not wasting everyone’s time and getting the payment in a more widely accepted form of payment.

Anonymous 0 Comments

I don’t know if I (or most people) would ever pay that way. If you’re making it out to “cash”, then you should go and cash it yourself and pay him the money.

If you’re writing the check to that guy, put his name as the recipient.

Either way, if the guy is giving you the quad for the check, it doesn’t matter whether he cashes the check or uses it the way you described. At the end of the day, the check is useless unless there is money in the account when you go to cash it. I don’t see why people would just take it at face value.

The reason we just accept paper money is because it’s (theoretically) accepted by the government as legal currency. That’s why most people accept traveler’s checks as valid currency; the person had to pay cash up front for the value on the check.

Anonymous 0 Comments

Would the second seller trust that a stranger (the first buyer, who is a third party to the second sale) has enough money to cover the check? I think most people would require that the payment be made directly by the buyer and not by a third party.

Anonymous 0 Comments

Common sense. If Joe Jones is buying a quad from me and gives me a check made out to cash originally from Peggy Smith…no way am I taking that check. As far as I know it’ll bounce and I’m left with nothing

Anonymous 0 Comments

People trust bills because dept of Treasury stands behind those and says “we guarantee that you will be able to exchange this for goods worth $X”. People don’t trust this guy’s chèque the same way because they would need to take steps to validate that indeed they can exchange the chèque for goods worth $X. Yes

Anonymous 0 Comments

The risk of the check bouncing stops that.

Someone wants to pay you with cash? Great – now you have cash!

Someone wants to pay you with a check made out to cash, which was written on the account of some other third guy that you never heard of? Riiiiiight – your immediate first thought is going to be “well that’s *clearly* a scam of some kind”, even if it really is legit.

Anonymous 0 Comments

cash is currency issued by a government and backed by them. a check is a private iou and promises to give cash when presented to the bank (if the writer has sufficient funds). theoretically, it could work like you describe, but irl someone along the way would probably want cash, if they don’t trust the guy who wrote the check.

Anonymous 0 Comments

Tldr it’s because checks can bounce.

Cash is cash. Aside counterfeiting a $1000 In cash is usable anywhere in the usa. No fear of it not working. So you can buy my pokemon cards for cash.

Debit and credit cards are near instant. So the transaction is immediate. Debit/credit cards are like using a teacher as a 3rd party to ensure your pokemon cards are traded for the agreed amount.

Checks are basically IOUs until in your account.

While it’s not legal to write bad checks there is no easy way to get my goods back. So I take your check you take my cards. I deposit the check and I get notified it bounced. So now I’m actually out $30 or so on top of my pokemon cards. You mean while use them as toilet paper. Ruin the values and 5 months later MAYBE go to prison for check fraud and I MIGHT get able to get restitution. Not including my lawyer fees.

Anonymous 0 Comments

There is nothing to stop an individual or company from accepting pretty much anything (legal) in exchange for their goods and services. (ie you can offer to mow someone’s lawn for lunch).

On the other hand, there is nothing to force an individual or company to accept an offer to exchange. So there is no obligation for any individual or business to accept a bank check as payment.

So in theory, nothing stops someone from accepting a piece of paper with a bank name, signature and some dollar amount written on it as payment. In practice, given the risk involved, it is less common.

There are exceptions – because the US dollar is legal tender in the US, individuals and businesses cannot refuse it as a payment for (domestic) debt. Also, the USD will always (and generally only) be accepted by the US government for taxes and fees. This gives the USD some value because most businesses and people will have need for it when it comes to settling up with the government. This makes the US dollar very transferable.

Anonymous 0 Comments

Coming from a bank employee, checks can be transferred to one other party but only once and it can’t be higher than $1000.

From a security standpoint, the original maker of the check has their account info plastered all over it so the less people having that information the better. Plus they probably want the check to clear their account sooner than later since that does not happen until the check is presented to a teller or deposited.

Further, it’s just a lot easier to only confirm 2 or 3 signatures than it is to check countless of them. Checks simply can’t be as liquid as cash is.