The Issue Of Notes

As an alternative for or a supplement to the conduct of checking

accounts a commercial bank may issue its promissory notes payable to

bearer on demand. By the issue of notes is meant their transfer to

customers in exchange for cash, for checks left for collection or

drawn against a credit balance in a checking account, or for

discounted notes and bills.



By the use of these notes commercial banking can be arried on

without checking accounts. In that case the notes are issued in

exchange for cash and discounted bills, and notes are returned to the

bank in exchange for cash or when discounted bills or notes mature and

are paid. In the bookkeeping process which has been described bank

notes thus issued and returned perform precisely the same function as

checking accounts, and are related to the discount of commercial paper

and the credit system of the country in precisely the same manner as

such accounts.



Most banks of issue at the present time conduct checking accounts

also, using the one instrumentality or the other as their customers

desire. In this case notes are issued in exchange for checks drawn

against credit balances on checking accounts or deposited for

collection as well as in exchange for discounted notes and bills and

cash.



By the use of both notes and checking accounts, a bank can supply most

of the needs of its customers for a circulating medium, the notes

serving as hand-to-hand money, and the checking accounts, practically

all other purposes. Being the direct obligations of banks attested by

the signatures of their responsible officers, and being payable to

bearer on demand and capable of being issued in all necessary

denominations, such notes can be transferred without indorsement, can

be used for making change and payments of small and moderate size for

which checks are not convenient, and they do not need to be presented

at a bank for the test of their validity. If the bank or banks which

issue them are properly conducted and supervised and properly

safeguarded by law, such notes will circulate freely through the

length and breadth of a country.



Checking accounts meet in the most satisfactory manner all currency

needs for which hand-to-hand money is not well adapted, such as large

payments and payments at a distance. With a few strokes of a pen

payments of the greatest magnitude can be made through their agency.

Checks can be sent through the mails at slight expense and without

danger of loss of the amount involved. By the devices known as

travelers' and commercial letters of credit, checking accounts supply

the most convenient form of currency for travelers and for merchants

engaged in foreign trade.



Besides bank notes and checking accounts the only forms of currency

needed in any community are standard and subsidiary coins, the former

for use as ultimate redemption material for all other forms of

currency and for the payment of international and other balances, and

the latter for small change. Even these forms of currency are supplied

by commercial banks, but since they do not create them, ways and means

of procuring them in the quantities needed constitute one of their

peculiar problems.