amount and can be transferred from one person to another by indorsement; they are more convenient and safe than coin or notes for sending through the mail; if a check is lost a duplicate can be issued and payment of the original stopped at the bank; and, of not least importance, a cancelled check constitutes a voucher or receipt showing that the obligation for which it was drawn has been paid. Because of these and other advantages, deposit currency in the form of checks finds steadily increasing use as an instrument of credit.

61. Instruments of banking credit. The chief instruments of banking credit, other than bank notes, are checks, bank drafts, bank acceptances, and letters of credit. A check is a written order on a bank for money drawn by one who has a deposit there. Checks are usually made payable to someone's "order," and must. then be indorsed by the payee before they can be negotiated further or cashed. A check drawn to bearer" is payable to any person who holds it. Technically, a check is only an order on the bank, but legally it is an implied promise to pay on the part of the drawer of the check, and any person "giving a check upon a bank in which he has no deposit account is liable to prosecution for obtaining money under false pretences." A depositor, wishing to make a payment at a distance where he is not known, or being required to present unquestionable evidence of his financial ability to fulfill his agreement in some contract, or bid for bonds, or the like, may request his bank to certify his check. The cashier writes or stamps across the face of the check the word "certified" or "good when properly indorsed," followed by his signature. The check then becomes the bank's promise to pay or guarantee and the depositor's account is at once debited as if the check had been paid. Where a bank does not make a practice of certifying checks, it may instead issue a bank draft or a cashier's check payable to the order of the depositor, or to the person whom he designates.

A bank draft is an order drawn by one bank on another bank. Practically all banks keep funds on deposit with

banks in other cities, especially in the large financial centers, in order that they may be able to meet the demands of their customers for a form of payment which will be accepted without question. The banks draw upon these accounts and sell their drafts to their customers, making a small profit on the charge for "exchange." Bank drafts

pass as cash practically anywhere in the country and constitute an important method of making remittances from one part of the country to another. Drafts on New York, commonly known as "New York Exchange, are acceptable all over the country, owing to the fact that New York

Pay lathe order of

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is the commercial and financial center of the country and that business men everywhere have dealings with that city.

A bank or banker's acceptance is a bill of exchange drawn upon and accepted by a bank or a financial firm engaged in the business of granting acceptance credits. It is a device by which a bank permits the use of its own credit by its client for a consideration. The following transaction will illustrate the use of the bank acceptance: A in Chicago buys a bill of goods from B in Philadelphia and arranges with his bank to accept on presentation the draft of B with bills of lading or other documents for the goods attached. Upon receipt of the draft and documents the bank accepts the draft, thereby assuming responsibility for its payment at maturity. The instrument has thus be

come a bank acceptance and may be sold, rediscounted, or held as an investment. A agrees to furnish his bank with funds to pay the acceptance at maturity, and the bank turns over to him the documents which entitle him to the goods. The bank advances no money; it merely extends the use of its credit to its customer, for which service it charges him a commission agreed upon in advance. Another form of bank acceptance, known as a commercial credit bill, is created when a customer draws his own draft directly on the bank and the bank accepts it for payment at a future date. Such acceptances or bills may be secured by some form of collateral or by the general credit of the customer. The bank acceptance has long been employed in Europe, and is slowly making its way in this country. Prime bank acceptances backed by well-known banks are readily rediscounted and constitute one of the most liquid of all forms of bank investments. Originally the Federal Reserve Act permitted member banks to accept only such drafts as represented operations in the exporting and importing of goods, but by an amendment passed in 1916 domestic acceptances also were permitted.1 To encourage the use of these doublename drafts, the Federal reserve banks established favorable or "preferential" discount rates for them. For the year 1916 these rates averaged less than 2 per cent, but early in 1920, as a part of the policy of post-war deflation, rates were raised to 6 per cent. In 1914 New York State passed a law permitting state banks and trust companies to make both foreign and domestic acceptances, and other states have enacted similar legislation.

A cashier's check is an order on a bank drawn by its own cashier. It differs from a bank draft in being drawn by the cashier upon his own bank instead of on some other bank. It is used when the bank has payments to make, just as an individual uses his check. It is also issued to customers to be remitted to their creditors like a bank draft; and it is sometimes used in lieu of certification where it is not the custom of the bank to certify.

1 For further discussion of bank acceptances, see pp. 321, 398.

A letter of credit is a document issued by a bank or banker directed to its correspondents authorizing the bearer to draw upon the issuing bank or some central agent up to a certain amount. A traveler, before starting abroad, buys a letter of credit from his bank. In any foreign city, as he may have need for the money current in that country, he goes to the office of the correspondent named in his letter of credit, and makes out a draft for the amount he needs. The draft will be cashed, after comparison of the signature on the draft with that on the face of the letter, and the amount withdrawn, plus commission, will be entered on the letter. Thus the letter will show at any time how much of the credit remains unused. Commercial letters of credit provide a convenient means of paying for goods bought in any part of the world or of receiving payment for goods exported.1

To meet the demands of travelers for a convenient, safe and economical method of carrying funds, some of the express companies and international bankers issue "travelers' checks." They are issued for fixed amounts, ranging usually from $10 up to $100, and before the war showed also the equivalents in the money of the principal European countries. To provide a simple means of identification and security against loss of the checks, the intended user places his signature upon each check. When he wants to obtain funds at the bank or express office, or to pay his hotel bill, he again signs his name in the proper place on the cheque, thus completing the issuance and insuring the identification of the rightful owner, as the two signatures must agree. The advantage of these checks is that they are cashed without discount or commission by bankers, agents of express companies, steamship offices and the leading hotels in Europe, the United States and practically all over the world. They are convertible into money at almost any time and place.

62. Effect of credit on prices.-In discussing the value of money and price changes in a previous chapter, frequent 1 See p. 247.