A cheque is a preprinted form on which instructions are given to an account provider (such as a bank or building society) to pay a stated sum to a named recipient. Cheques have been a traditional and common form of payment for various kinds of debts. This article provides a detailed exploration of cheques, their types, historical context, and relevance in today’s digital world.
Historical Context
The origins of cheques date back to ancient times, with early forms appearing in the Persian Empire around 300 B.C. The modern cheque system began to take shape in the 17th century in England. By the 19th century, cheques had become an essential part of the banking system worldwide.
Types of Cheques
- Open Cheque: An uncrossed cheque that can be cashed at the bank of origin.
- Crossed Cheque: Two parallel lines across the face of the cheque indicate that it must be paid into a bank account and not cashed over the counter.
- Order Cheque: Made payable to a named recipient ‘or order,’ enabling the payee to either deposit it or endorse it to a third party.
- Blank Cheque: The amount is not stated; often used if the exact debt is unknown, with the payee completing it.
- Rubber Cheque: A cheque that ‘bounces’ back to the drawer because of insufficient funds.
- Specially Crossed Cheque: Contains the name of the payee’s bank, further restricting negotiability.
Key Events in Cheque Usage
- Cheques Act 1992: Legal force was given to the words “account payee only” on cheques, making them non-transferable and preventing fraudulent conversions.
Cheque Usage and Decline
With the rise of electronic payment systems, the use of cheques has dramatically decreased since the 1990s. In the UK and Europe, most retailers no longer accept cheques, although they remain more prevalent in the USA (spelled as “check”).
Cheque Transactions: Model and Diagram
graph TD
A[Drawer's Bank Account] -->|Issues Cheque| B[Cheque]
B -->|Deposits Cheque| C[Payee's Bank]
C -->|Presents Cheque| D[Drawer's Bank]
D -->|Funds Transferred| C
C -->|Funds Credited| E[Payee's Bank Account]
Importance and Applicability
Cheques serve as vital financial instruments for various transactions:
- Paying bills
- Making large purchases
- Business transactions
- Legal settlements
Considerations for Using Cheques
- Security: Special crossings can enhance security and limit fraud.
- Clearing Time: Cheques take several days to clear.
- Acceptance: Decreasing acceptance by retailers due to digital alternatives.
Related Terms
- Bank Draft: A cheque drawn by a bank on its own account.
- Stale Cheque: A cheque that is no longer valid because it was presented too long after it was written.
Comparisons
- Cheque vs. Digital Payment: Digital payments are faster, more secure, and increasingly favored over cheques.
- Cheque vs. Bank Draft: Bank drafts are considered more secure as they are guaranteed by the bank.
Interesting Facts
- The Guinness World Record for the largest cheque was set by Axa Insurance UK in 2009, for £38,000,000.
- The oldest surviving cheque is dated February 16, 1659, and is in the archives of the Bank of England.
Inspirational Story
In 1955, actor and musician Sammy Davis Jr. received a cheque for $1,000,000 for a TV series deal – at that time, one of the largest sums ever paid by cheque in the entertainment industry.
Famous Quotes
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand
Proverbs and Clichés
- “A cheque in the mail is worth two in the bank.”
- “A rubber cheque bounces higher than your expectations.”
Expressions, Jargon, and Slang
- Bounce a Cheque: When a cheque is returned due to insufficient funds.
- Blank Cheque: Unlimited freedom of action.
- Rubber Cheque: Slang for a cheque that cannot be processed because of lack of funds.
FAQs
How long is a cheque valid?
Can cheques be stopped?
References
- The History of the Cheque by Professor H. C. Mallam.
- Cheques Act 1992, UK Legislation.
- Payment Systems and Their Evolving Nature, Financial Journal.
Final Summary
Cheques have played a critical role in the financial systems for centuries. While their use has declined with the advent of electronic payments, they remain an important instrument in specific contexts. Understanding the different types, usage considerations, and historical significance of cheques enriches one’s financial literacy and appreciation of evolving payment methods.
