The next form of credit, in point of general use, is the bank account. Money or representa tives of credit are deposited in the bank and drawn upon to meet current needs. The man who works for a salary frequently deposits in full the check which he receives for the month, drawing upon it subsequently for all the various bills of the previous month and for such items of the current month as require ready cash. In this way he avoids the necessity of handling any considerable share of the money which he earns. The instrument used in withdrawing money from the bank, or transferring credit to others, is the bank check. It is a very brief and informal order, bearing a date and directing the bank to pay to the person named or to his order a specified sum. The following is the usual form : No. 199. NEW YORK CITY, Jan. 1, 1896.
Centennial. National( Bank.
Pay to the order of William Jones Fifty. -M-, Dollars.
$ 0 Richard Palmer.
For the convenience of the user blank checks are usually bound together, each with a stub attached with blanks for number, date, name of person in whose favor the check is drawn, balance remaining before check is drawn, amount of check, balance after deducting check, and for the amount of any deposits.
The use of checks by private persons in ordi nary business transactions is much more gen eral in England and America than in the countries of continental Europe, where it is more customary for small depositors to apply at the bank in person when money is needed. Bank credits are an economy of the circulating medium, varying in extent with the length of time between the drawing and the presentation of checks. The system secures greater safety than the practice of hoarding money at home or carrying it about the person. It enables the community to utilize a greater proportion of its spare cash, since the banks, as has been ex plained, need not keep on hand all the money against which depositors are entitled to draw. Most important of all, from the standpoint of the individual depositor, is the personal conven ience in making payments. Checks may be sent through the mail or by messenger with entire safety, since lost checks, if reported by number to the bank upon which they are drawn, may be refused payment. Checks need not be presented at the bank where the money is deposited, but will be paid at any bank where the drawee is known. A person who receives in the course of the day checks from various sources upon different banks, may deposit them all to his own credit in the bank where his account is kept.
This thorough organization of private busi ness credit is of great economic importance. The volume of business may be very much more extensive and complicated than under a system of cash payments. It permits many transactions which would not be possible at all, if the surplus cash of individuals were not thus collected into larger funds, and if the check system did not insure easy transfers of credit. The abuse to which it is subject in the too fre quent use of checks for petty amounts is easily controlled by the practice of charging a small fee for exchange. This practice is adopted most frequently in the case of isolated banks which do not have easy communication with other banks, and especially when exchanges be tween the community of which it is the credit centre and the other communities with which it deals do not balance each other. In such cases the bank must send or receive money and a charge must be made to cover the cost.
The next step in the development of credit is the organization of a system by which banks may easily adjust their balances with each other. Under the check system each bank will receive during the day the checks of many other banks, and its own will be widely distributed. Since such a multitude of private persons are con cerned in these transactions whose credit is continually shifting, and since some of them may have overdrawn their accounts, it is essen tial that each check should promptly reach the bank against which it is drawn in order that its character may be ascertained. This is accom plished through the Clearing House, or associa tion of banks. In an incredibly short space of time, after the presentation by each bank of the checks which it has cashed for other banks, its own liability for checks cashed elsewhere is ascertained and a statement of the balance, whether favorable or unfavorable, is presented. This balance may be settled in money or in clearing-house certificates. The clearing house is thus a bank which deals in the credit of other banks, and its economy lies in the same direc tion as that indicated for banks in general. The real saving of time and of the necessity for using money is most fully revealed in the clear ing-house transactions of the large cities. Only a minute fraction of the total business transac tions finally requires the use of money. By far the greater part consists of transfers of credit.