As in previous years, my income tax refund check from the state of North Carolina includes a notation on the front that it is “Payable at Par Through Federal Reserve System”.
This statement strikes me as archaic, since, as far as I know, for many decades this has been true for all checks, whether they included the statement or not. Having this notation makes me wonder if state checks used to be paid off in tobacco leaves, or you used to have to go to Bob’s Bank and Feed Store and negotiate a percentage of face value, until the state modernized and became a party to the Federal Reserve System, so now they want you to know you don’t have to go through the old process any more.
Any way, I was wondering if anyone knew of an historic reason why the state of North Carolina feels it is important to include this statement on the check.
The rest of the world, not being party to the FR, requires such notice. International banking is rife with handling charges, and it’s worthwhile to know where you can get the par value.
I guess that’s the problem. A “check” is an instruction to the maker’s bank to pay funds to the order of the payee. North Carolina apparently uses “warrants,” not “checks,” which apparently means that the instrument is presented directly to the North Carolina State Treasury, through the federal reserve system.
Interesting that this is technically a warrant rather than a check – wonder if I would impress the bank teller with my new-found knowledge if I said “I would like to deposit this warrant in my account”. The document does say “check” on it in a number of places, but does not list a bank name, although a “bank code” of 66-1059/531 is listed, along with routing codes on the bottom of 31567209, 053110594 and 9-000-067"
Right, that’s a consequence of how states do cash management. Most states have hundreds of bank accounts, for a variety of reasons–mostly for the political joy of making more bankers happy, but partly as a legacy from an era when banks were smaller and more restricted as to branching, and there were legitimate concerns about putting the state eggs in one basket in the event of bank failure.
It isn’t practical for the state to write checks against hundreds of accounts, not knowing when they’ll be cashed, so the state Treasury acts as a “super bank account”. The state writes warrants against the Treasury, people deposit the warrants in banks, and only when the warrants are presented for clearance does the state decide which bank account to debit.
Not any time recently. But in earlier times, yeah, that would happen. States defaulted like crazy during the Nineteenth Century, especially in the postwar South. State bonds often traded at deep discounts, and sometimes state warrants did as well. Merchants and banks were reluctant to accept them, because the state would drag its feet when they were presented for payment. It was hell if you were a state employee, getting paid in warrants because the state had run out of cash.