What’s the difference, if any, between a banknote and a certified cheque or money order payable to “bearer”? I just looked at some banknotes I have and they all have wording similar or identical to a cheque: for example, “Bank of England promises to pay the bearer on demand the sum of twenty pounds”, and “Bank of Canada will pay to the bearer on demand one dollar”. Apart from the fact that they’re made of paper and don’t contain the same security features, is there any real difference between a five-dollar certified cheque payable to the bearer and a five-dollar banknote?
Is there anything stopping me from going to a reputable bank that doesn’t charge for certified cheques, buying a thousand one-pound certified cheques payable to “bearer”, and then circulating them like one-pound notes (provided people accept them)? I’m thinking, for example, that if I could get the bank to print the certified cheques using my own design, I would essentially have my own personalized, circulating “banknotes”.
Before you respond: I know some people are going to say that banknotes are legal tender, whereas cheques and money orders are not. However, this is not the case universally. For example, in Scotland no banknotes except the (discontinued) English one-pound note is legal tender. Believe it or not, not even Scottish banknotes are legal tender there.
Not sure what you are getting at with banknotes with the above. Banknotes, in my world, mean legal tender (aka money) and are generally issued by central banks. I can only assume Scottish banknotes are no longer good because they are not the central bank of Great Britain and are not allowed to issue “money” on their own.
Certified Checks are checks drawn on your account where the bank guarantees sufficient funds were present to cover the check when it was drawn. Generally, I think, the bank reserves those funds in your account as if you just took it out so the funds will be there when the check is cashed.
A Cashier’s Check is a check drawn on the bank’s account. So, you give the bank $500 dollars and they issue a check under their name. Presumably such an instrument is more reliable as the bank can probably be counted on to honor their check better than most individuals.
Money orders are very similar to a certified check except they tend to be limited in the amounts you can write them for (IIRC ~$1,000 or so). A certified check can be for more.
You could go buy 1,000 certified checks for a pound and circulate them as money except the cost of the certified check in this case will likely be more than the pound on its face. Add to that while a certified check is close to being as good as money not everyone will accept them in lieu of cash. Certainly they are harder to mess around with than cash.
I have been amazed to have banks insist on a waiting period for a certified check to clear. My brother sent me some money while I was trying to get a mortgage and I needed the cash in the bank ASAP. I got the certified check, went to the bank and they told me it’d be available in three days. I hit the roof…I mean what is the point of a certified check if the bank waits as long to clear it as a regular check? After much complaining they relented and applied the funds the following day.
The “payable to bearer” clauses on banknotes are obsolete. They’re relics from the times when paper money was backed with gold reserves in the vaults of the central banks that had issued them: You could actually walk into a branch (or the main branch, depending on statutory requirements) of a central bank that practised the gold standard and redeem your note into a define equivalent of gold - in Britain, three pounds something per ounce of gold; in the U.S., $20.67 per ounce of gold until 1933 and $35 afterwards, until 1971.
But those times are past. No major currency in the world is backed by gold. The clauses are obsolete, and the Bank of England won’t redeem them into anything except other banknotes.
From the OP, I think the key difference is that the certified cheque is backed by the issuing bank, and needs to be presented to them to be honoured, so you are taking a bit of a punt on the bank continuing to be there and cashing it. Also, people are not obliged to accept them in payment, because they are not legal tender.
Banknotes are backed by the government, and you can use them with anyone. No worries about anyone questioning its authenticity, wanting to call up the issuing bank to check if they will still honour it, etc. They are just more convenient. But fundamentally they are all just bits of paper purporting to represent some real asset value.
Have a read about scottish banks - interesting history. Scottish money is backed ultimately by deposits at the Bank of England, I believe, and they certainly have the legal right to issue money. However, anyone is free to refuse to accept them - for instance here in London many people refuse them because they are not familiar enough with scottish notes to tell if they are forgeries or not.
It might help to distinguish between two types of bank notes–(a) old-fashioned private bank notes, issued by a commercial bank; and (b) modern central bank notes, a.k.a. “currency”. In the United States, creature (a) doesn’t exist any more. Private bank notes have been illegal since 1913. Banks created the checking account as a replacement. In the UK, I believe you still have some private bank notes floating around in Scotland.
And you’re right, there’s no conceptual difference between a private bank note and a private, certified check to “bearer”.
With respect to creature (b), the difference is as slaphead indicates. Even a certified check depends for its value on the issuing bank’s continued existence. Granted, bank failures aren’t very common nowadays, and there’s deposit insurance. But the certified check may also have time restrictions on when it can be redeemed. The government note derives its value from its designation as fiat money and legal tender by the government, and it has no time restrictions on its usage.
But they won’t accept them–isn’t that the problem? The government central bank notes are too convenient and too universally recognized and accepted. Even if a merchant does accept your “bearer” checks–and they might, if they take checks–they won’t give them out as change. They’ll deposit them with their bank, and their bank will present them to your bank for redemption. Your psychonaut bearer notes, alas, will have a short and unexciting life!
Well, what about if I were the merchant? I could give out psychonaut bearer notes as change or in lieu of rebate cheques or whatnot, which would at least give them a fighting chance of being subsequently circulated rather than deposited. In fact, the retail chain Canadian Tire does something similar with its Canadian Tire “money”—though the “money” is redeemable only at Canadian Tire, the notes are common enough that many third-party merchants will accept them as payment.
Certainly, in some circumstances, privately produced “near-money” will circulate–casino chips in Las Vegas, merchant association coupons in small-town downtowns, and so forth. Your proposition has the novelty of being associated with a bank, reminding one of old-fashioned private bank notes. Hey, if your customers will accept the checks as change, go fot it!
Or they could be redeemed for coined money, which are issued by a different authority and technically not the same thing.
The promise to pay is not entirely obsolete, it’s just that the means of repayment is very restricted. If you lost a 5-pound note, or a $10 bill, and it never got spent, at the end of the day the central bank is that much up on the deal. On the other hand, if that money is spent and eventually returns to the bank accounts of the merchant you gave it to, it will ultimately find its way back to the central bank, which must give the merchant’s bank credit for it.
I’ve always wondered, if I have a large amount in bills that I intend to deposit, could I endorse the backs “for deposit only” and give my account number?