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   Chapter 9 BANK DRAFTS

Up To Date Business By Various Characters: 3204

Updated: 2017-12-06 00:03


A draft is a formal demand for the payment of money. Your bank cheque is your sight draft on your bank. It is not so stated, but it is so understood. A cheque differs from an ordinary commercial draft, both in its wording and in its purpose. The bank is obliged to pay your cheque if it holds funds of yours sufficient to meet it, while the person upon whom your draft is drawn may or may not honour it at his pleasure. A cheque is used for paying money to a creditor, while a draft is used as a means of collecting money from a debtor.

Nearly all large banks keep money on deposit with one or more of the banks located in the great commercial centres. They call these centrally located banks their correspondents. The larger banks have correspondents in New York, Chicago, Boston, and other large cities. As business men keep money on deposit with banks to meet their cheques, so banks keep money on deposit with other banks to meet their drafts.

A bank draft is simply the bank's cheque, drawn upon its deposit with some other bank. Banks sell these cheques to their customers, and merchants make large use of them in paying bills in distant cities. These drafts, or cashiers' cheques, as they are sometimes called, pass as cash anywhere within a reasonable distance of the money centre upon which they are drawn. Bankers' drafts on New York would, under ordinary financial conditions, be considered cash anywhere in the United States. A draft on a foreign bank is usually called a bill of exchange.

A cheque for the purchase of a draft.

Cheques have come to be quite generally used for t

he payment of bills even at long distances. If a business man desires to close an important contract requiring cash in advance he sends a bank draft, if at a distance, or a certified cheque, if in the same city. If he desires simply to pay a debt he sends his own personal cheque. Bank drafts are quite generally used by merchants in the West to pay bills in the East. A draft on New York bought in San Francisco is cash when it reaches New York, while a San Francisco cheque is not cash until it returns and is cashed by the bank upon which it is drawn. In the ordinary course of business cheques are considered cash no matter upon what bank drawn. The bank receiving them on deposit gives the depositor credit at once, even though it may take a week before the value represented by the cheque is in the possession of the bank.

A bank draft.

All wholesale transactions and a large proportion of retail transactions are completed by the passing of instruments of credit-notes, cheques, drafts, etc.; a part only of the retail trade is conducted by actual currency-bills and "change." Banks handle the bulk of these transferable titles and deal to a very small extent-that is, proportionally-in actual money. The notes, drafts, bills of exchange, and bank cheques are representative of the property passing by title in money from the producers to the consumers. A small proportion-perhaps six or eight per cent.-of these transactions is conducted by the use of actual bank or legal-tender notes. This trade in instruments of credit amounts in the United States to fifty billions of dollars yearly.

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