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
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.
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.
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.
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.
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