BANK-NOTES AND CHEQUES In order that bank credit may be used as a means of payment, it is quite clearly essential that some convenient procedure should be instituted for assigning a banker's debt from one creditor to another. In the infancy of deposit banking in mediaeval Venice, when a depositor wanted to transfer a sum to someone else, both had to attend at the bank in person. In modern times the legal doctrine of negotiable instruments has been developed, and the assignment of a debt can be readily effected by the deliv ery of a document from the old creditor to the new, provided that the contract with the debtor (the banker) contemplates this being done. The document may take either of two forms: (I) a cheque, or the creditor's order to the banker to pay; (2) a note or the banker's promise to pay.
Historically the bank-note came first. It may be regarded as the creditor's title deed of a debt due from a banker. The rights it represents are assigned by simple delivery; the bear er of the note for the time being is ipso facto the creditor of the bank. Payment in bank-notes is therefore effected in exactly the same way as payment in money. Payment of large sums in coin is inconvenient; the coins must not only be counted but scruti nized to see that none of them are counterfeit, or unduly worn, etc., and the expense of handling and transporting considerable quantities of the precious metals is serious. By the use of bank notes of large denomination the labour of counting is reduced to a trifle, and the rest of the trouble is avoided altogether.
A note is issued by the banker when he has to make a payment to someone (e.g., a depositor or a borrower) who is willing to accept it in that form. A cheque on the other hand is made out by his customer on the occasion of the payment to be effected by it. The bank-note is for a round sum, the cheque for the exact sum to be paid. The bank-note circulates from hand to hand like money, and may be held by people who have no direct dealings with the issuing bank. The cheque is delivered to the per son to whom payment is to be made and is in general thereupon presented to the bank and cancelled after the single payment it was designed to discharge. A cheque can only be drawn by a cred itor of the bank, a depositor. And his deposit must be of the kind payable on demand (on current account). He cannot draw a cheque on a deposit payable only after notice or at an agreed future date (a temporary investment). If he wishes to use such a deposit as a means of payment, he must first give the requisite notice or agree with the banker terms on which the notice is to be dispensed with. Deposits subject to notice are sometimes called time deposits. Sometimes the term deposit is treated as belonging specially to them as distinct from balances on current account. Nevertheless the latter are very commonly described as demand deposits, and the word, deposits, itself used to include both. For the largest payments the cheque is distinctly more convenient than the bank-note.
