Checkable Deposits
Checkable deposits refer to funds held in a bank account that can be accessed by writing a check or using a debit card. These deposits are considered part of a bank's demand deposits and are easily accessible for making payments and withdrawals. Checkable deposits play a crucial role in the functioning of the modern banking system and are a key component of the money supply.
3 Key excerpts on "Checkable Deposits"
eBook - ePubContemporary Economics
An Applications Approach
- Robert Carbaugh(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...M1 is expressed by the following formula: M1 = Currency in the hands of the public + Demand deposits + Other Checkable Deposits + Traveler’s checks In our definition of money, we include currency only if it is in the hands of the public. Some cash is kept in bank vaults and is released only when customers withdraw cash from their vaults. Other cash is kept on deposit at a Federal Reserve Bank, which stores the funds for future use. Until this cash is released by banks or a Federal Reserve Bank, it is not considered part of the money supply. Notice that the components of M1 are highly liquid (immediately spendable) money that can be used to finance transactions. Coins and paper currency are as liquid as money can be. Checking accounts? Banks are legally obligated to make the money in your checking account available to you upon demand. Traveler’s checks, too, are immediately spendable money that we widely accept as payment for goods and services. 4 4 Economists use a broader measure of the money supply to account for other financial assets. The M2 measure of the money supply includes all of the components of M1 as well as (small-denomination) time deposits, money market deposit accounts, and money market mutual funds. As seen in Table 14.3, the M1 money supply equaled $3,049.4 billion in 2015. Of this amount, 43 percent was issued by the U.S. Treasury and the Federal Reserve Banks as coins and paper currency; 57 percent was issued by our banking system as checking account money (demand deposits and other Checkable Deposits), and zero percent came from traveler’s checks. Put simply, checking accounts are a significant component of the M1 money supply. Why are checking accounts a widely used type of money? First, making large payments by check is convenient. Imagine how much paper money—say, $20 bills—you would need to purchase a new house! Second, checks provide a record of payment, thus making it unnecessary to keep receipts for purchases of goods and services...
eBook - ePub- John Roscoe Turner(Author)
- 2019(Publication Date)
- Routledge(Publisher)
...Compared with these deposits the bank credits (substitutes for money) issued upon them are many times larger. Consequently deposits have the effect of lowering the purchasing power of money or of raising prices. 12. Time Deposits are carried by savings-banks, as well as by separate departments of commercial banks. These deposits are not drawn (as are deposits in commercial banks) on demand. Upon making a time deposit the customer agrees not to draw for some specified minimum time, or until a certain number of days after he shall have notified the bank of his intention to withdraw funds. Because the banker knows in advance when withdrawals will be made he can prudently invest a large portion of the funds intrusted to his safe-keeping. There is no danger of a "run" upon the bank in times of panic. He has to maintain but a small fraction of the deposits to meet the demands of his customers for cash. The Federal Reserve Act of 1913 requires that only 5 per cent shall be kept as a reserve against time deposits. The depositor receives Interest on time deposits and regards them as investments and not as demand credit available for current cash transactions. Demand deposits are spoken of as checking accounts; they are payable at any time and the demand for payment is made by the personal check of the depositor. 13. Liabilities and Assets. Thus far we have seen that bank discount amounts to this: the bank buys the right to collect a specified sum of money at a certain future time, and gives in exchange its promise to pay on demand a sum of money equal to the present worth of the money it acquires the right to collect. A liability (debt) is that which one is under obligation to pay. The bank has a right to receive, at its maturity, the face value of a note which it discounts; there is a corresponding duty to pay on the part of the debtor or maker of the note. That which is a right of the bank is a debt or liability of the debtor...
eBook - ePub- Enrico Colombatto(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...Other assets are regarded as nearly equivalent to – or easily convertible into – basic money, for example short-term US Treasury bonds. But these bonds are not directly spendable; the owner must first sell them at the current market price and then spend the money received. Non-chequeable bank deposits (savings accounts, certificates of deposit) are closer to being spendable when they can be instantly converted into chequing balances. As a consequence of the ambiguity concerning what can be regarded as a means of payment, economists usually distinguish among different categories of money supplies. In this light, it is now common practice to define the following aggregates: M0, which corresponds to our previous definition of money in circulation. For example, in December 2012, M0 in the USA was about $1.1 trillion (GDP was about $15 trillion). MB (monetary base), which corresponds to the money in circulation (M0), plus the money – basic money and banknotes – in bank vaults, including the central bank's. For example, MB in the USA was almost $2.7 trillion in December 2012. M1, which in the USA corresponds to Federal Reserve notes plus demand deposits and traveller's cheques. Under normal circumstances (e.g. before 2008), M1 was typically about twice as large as MB, but currently it is actually smaller. M2, which corresponds to M1 plus time and savings deposits less than $100,000. In a modern economy, M2 can be five times as large as M1 (in December 2012, M2 in the USA was almost $10 trillion). In other words, there is no ideal definition of money supply, in that there is no a priori reason to argue that M0 is a better/worse measure than, say M1 or M2. We can only alert the reader to the fact that when the media refer to changes in the money supply with no further qualifications, they usually mean M2...
