Cheques

Chapter 1: The Background

Chapter 1 The Background 1.1 Economic Background 1.1.1 Money. The invention of money marks a great advance in the technology of trade. Money is something which has a standard value. It counts the same whatever it is exchanged for, whether that is wool or pigs, clothes or shelter, labour or personal services. Anything which people are prepared to pay for can be given a money value. Money can also be hoarded more efficiently than most other things. It is made so that it does not rot or rust or go out of fashion, though it can lose its value through inflation. It can easily be made to produce a profit by being lent at interest, with security given to the lender to ensure repayment. 1.1.2 Banks. The great institutional moneylenders, the banks, make their profits by taking advantage of the urge of those with money to make more money by lending it, and of the willingness of those who want to borrow money to pay interest for it. Technically and legally, banks borrow your money when you deposit it with them. They promise to repay it to you and may also pay you interest. Banks then lend that money to borrowers, charging more interest than they pay to lenders. From the customer's point of view, banks provide three important services. First they provide a safe place to store the customer's wealth and will pay it back in cash on demand or after an agreed period of notice. Secondly, they will use that wealth to pay the customer's debts, if the customer gives them appropriate instructions. A book of forms carrying those instructions, called cheques, is provided by the bank and makes it easy for the customer to transfer wealth without trouble or risk of loss. Thirdly, they collect money value for their customers in the form of cheques from their customers' debtors. For traders, money in the form of cash has drawbacks as a 4 Introduction means of payment. It is easily stolen and attractive to thieves because one piece is usually indistinguishable from another and it is readily accepted without question. It is risky to send money by sea and expensive to transport it in large amounts. And so traders invented a better method of transferring value which, though expressed in money terms, had none of those disadvantages. 1.1.3 Written promises to pay. First it became possible to create a binding debt by making a promise to pay. But debts of that kind are not like gold coins. They have no physical form. Their existence must be proved in some other way. Traders took advantage of writing and accepted certain kinds of written evidence of promises to pay in­ stead of demanding money. Promises written on pieces of paper are flexible and can be made to do all sorts of ingenious things. The person who makes the promise, the promisor, can state in what circumstances the debt will become due. Particularly important is the ability of the promisor to postpone the date when payment becomes due. If the promisor is promising payment for goods, and promises payment of the price of $10,000 in three months' time, even though the goods were delivered today, then the supplier has allowed the promisor credit The supplier will be getting some form of value for allowing that credit Perhaps the price is higher than it would have been for a cash sale. Perhaps the buyer would have bought else­ where if credit had not been offered. Whatever the reason, the supplier now has a document showing that the promisor will pay the sum of $10,000 in three months' time. That promise may be ex­ pressed to the supplier. Or it may be to anyone whose name has been properly substituted for the supplier's, or the document may say that anyone who possesses the document, known as the bearer of it, may claim payment on the due date. Or the debtor may in writing instruct someone who owes him money to pay the creditor. That someone may be a bank. The creditor may well be happy to accept such a document instead of cash. Moreover that document will give rise to a separate cause of action which is independent of the debt for the price and can be enforced even though there is some fault in performance. Consider this example: Wong supplies goods to Chan. Therefore Chan owes Wong the price...