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

Because checks are not legal tender. They are an IOU to be deposited from one account to another, and are therefore mere debit checks, hence the name.

You have to use legal tender provided by the Treasury as cash.

Anonymous 0 Comments

You’ve stumbled into the field of Commercial Paper and Negotiable Instruments. The person writing the check is called the Maker. In your example the maker has issued the check to cash. The maker then surrenders possession of the check to a person that is identified at the Holder. If the holder had also been named as the person to whom the check was made payable they would be known as both the Holder and the Payee. In accepting the check in payment the Holder and the Maker agree, likely unknowingly, to a set of rules and laws that apply to Commercial Paper which brings into the transaction each parties’ bank and the Federal Reserve and to a certain extent the laws of the state(s) where the transaction occurred. The Maker/Payor, Holder and Payee together with the additional parties are subject to the rules of presentment, acceptance and notice of dishonor. Potentially the check is accepted and paid or it might not. So in many ways a check is not the same as cash. In some ways a check is better than cash because a lost instrument can be cancelled and replaced.

There is however a type of check that is almost identical to cash although ever so slightly different. That is a Certified Check issued as a Certified check by a bank. If you’d like more detail let me know.

Anonymous 0 Comments

this used to be common. I have a check that was written in 1812 it was a long list of signatures on it for everyone one that had it.

just a few weeks ago my wife and I wrote a big check. to a guy, it got handed off on a private debt to some one else who cashed it. the bank did call is and ask if it was legit a check from us before they deposited it.

Anonymous 0 Comments

Checks are basically just notes from your bank saying “don’t worry, they have it, we promise”

So Sam using one to pay Taylor is Sam’s bank telling Taylor that they have the $1000. Taylor using that same check to pay Joe is Taylor, giving Joe a note from Sam’s bank, saying that Sam has the money. Joe isnt doing business with Sam, and Sam has no obligation to pay Joe. If that check bounces, Sam is on the hook because it’s his check, but Sam didn’t do business with Joe, so why should Sam pay Joe??? Too complicated, and that’s if the price of all these transactions is exactly 1000. Imagine someone paying with someone else’s check and expecting change back.

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.

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

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

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

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

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.