TRAVELERS' CHECKS AND LETTER OF CREDIT DEPARTMENT General Duties and Organization of the Department A travelers' letter of credit is a credit instrument issued principally by banks and used by travelers as a medium through which their funds arc made available. It is also called a "circu lar letter of credit" and is to be distinguished from commercial letters of credit as used by importers and exporters. It is essen tially a demand draft issued by a dealer in foreign exchange and payable in instalments by foreign correspondents of the issuer. Domestic letters of credit also arc issued for travel inside the country of the issuing bank or for travel in other countries and available in the currency of the issuing country.
A travelers' check serves the same purpose as a letter of credit and is a check for a specified amount issued by a banker and payable by any correspondent of the banker. Two decades ago nearly all letters of credit carried by American tourists abroad were provided by a few large banking houses of the East. To day hundreds of banks throughout the country issue letters of credit of their own or of some other institution on which their names appear. Travelers' checks are also issued by express companies. The result is a great multitude of forms different in detail but identical in principle.
It is the business of the letter of credit department to issue letters of credit and travelers' checks, to provide for the issuance of the bank's letters of credit through interior banks, to arrange with correspondents to honor the letters and checks and provide for their reimbursement, to make payments under letters of credit issued by other banks, and to take care of all appertaining matters.
The internal organization of the department for the handling of this work will vary with the bank and depend chiefly on the volume of work to be done. A convenient arrangement is to divide it into three sections: I. One to handle the bank's letters of credit and clean credits opened by itself.
2. One to handle clean credits opened with the bank in favor of individuals.
3. One to handle travelers' checks.
The work of each of these sections is performed by a clerk with such helpers as may be found necessary. The whole department is supervised by a responsible head.
The use of letters of credit and travelers' checks was very much disturbed and complicated by the war. The use of codes had to be abandoned, correspondents in enemy and certain neutral countries had to be eliminated, travelers' checks in foreign currencies were dropped, and so on. These conditions were temporary, and most of the practices of normal peace times have been or will likely be reinstated. The description in this book will therefore deal largely with pre-war methods.
Application for Letter of Credit A letter of credit is both a credit instrument and a letter of introduction to the banks to which it is presented. It is es pecially prepared to prevent erasures or alterations and forgeries and to guard against its loss. Before the war, letters of credit were almost all issued in pounds sterling, because this exchange generally commanded the highest rate the world over. But during and since the war the use of dollar letters of credit for foreign travel increased very fast. Dollar credits are particu larly advantageous in every country where exchange rates favor the United States. Moreover, if American currency is paid for a sterling credit in America and drafts drawn later under the letter must be converted into the currency in which the beneficiary is traveling, these two conversions are less desirable than the one conversion required when a dollar credit is procured. American banks also issue, when desired, letters of credit in the currency of a particular country when it is for use in that country alone.
The application for a letter of credit (Figure 26) should be somewhat after the following form: The application also has spaces for three or more signatures of the beneficiary. Of the three methods of reimbursement the applicant specifies one.