Why cheques have more bounce

16th July, 2011

“Dad? I’ve heard that they’re going to keep the cheque.”

“Yes, apparently they are.”

“What’s a cheque?”

“It’s a special piece of paper you can use to pay for things. You take a blank cheque and then you write out how much money you want it to be worth, and you give it to the person who wants the money.”

“So, if you wanted to be rich, you could just write a cheque for all the money in the world, like a million pounds?”

“It’s not that simple. You get the cheque from the bank. The bank has your money in what they call a ‘bank account’, and when you write a cheque, the bank takes the money from your account and puts it in the account of the person to whom you wrote the cheque.”

“That sounds like fun. Do the people with the money have big trolleys and bags with dollar bills in them?”

“No. Actually, the money doesn’t physically move. It’s just a computer somewhere keeping track of how much money is in your account. Then when you write the cheque, the computer talks to another computer and your bank account has a smaller number and the other person’s bank account has a bigger number.”

“Then why don’t people just send messages to the computer, like e-mail?”

“Well, lots of people had that idea, which is why there was this plan to get rid of cheques. But some people don’t like computers – usually older people.”

“Like grandpa?”

“No, not really. Grandpa takes computers apart and puts them back again for fun. But some really old people don’t like computers.”

“Like great-granny?”

“Yes. Great-granny didn’t like computers, but then great-granny would be 100 years old now, and she died a while ago. But there are still some people alive who don’t like computers and want to use cheques. A thousand of them wrote letters complaining that either they wanted to use cheques, or they wanted to get money from people who wanted to use cheques, and could we please keep cheques. So we’re keeping cheques. Remember, my love, that while Britain is obsessed with young people like you culturally, when it comes to politics, we’re obsessed with old people.”

“So will I get to write cheques when I am 100 years old?”

“I doubt it. All that happened this week was that banks agreed to keep open the system that allows cheques to be processed. But shops don’t have to accept cheques. So I expect they will die out as soon as most people don’t want to accept them as payment.”

“But wouldn’t shops want to accept cheques so they can sell things to people?”

“Not necessarily. If a shop is selling £10 of goods at a 5 per cent profit margin, then it is making less than 50 pence profit on the transaction. It might figure that it’s not worth the hassle of dealing with the cheque. A charity getting a cheque for £10 gets to keep the entire £10 – no wonder they are more willing to put up with the ridiculous concept. And charities don’t have large queues at the check-out.”

“That’s not fair. I wanted to write cheques like great-granny.”

“You can write all the cheques you want. Just don’t expect anybody to accept them as payment. That’s the thing about payment systems – it takes two sides to make them work. They’re not much use if other people don’t think they’re valuable. Governments can say it’s the law that you have to accept it, but that’s a minor factor. The world is full of alternative types of money. There are digital currencies such as Bitcoins and Linden dollars. Libertarians are trying to find ways to make it easy to carry gold and silver in a wallet-friendly format. There are air miles and loyalty cards and all kinds of alternatives. If people accept them as payment, they’ll work. If not, they won’t.”

“I heard at school that one time in Germany people used to swap coffee and cigarettes instead of using money.”

“Not quite true. In Weimar Germany, cigarettes and coffee weren’t being used instead of money. They were money. People weren’t swapping them. They were using them because they were convenient to carry around and, unlike the official money of the day, people knew what they were worth from one day to the next.”

“Was that when great-granny was a little girl?”

“Yes, it was. I don’t think she was ever fond of cigarettes, though. I think she preferred cheques.”

First published at FT.com

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