Monetary Theory and Policy in the Payments System of the Future: Comment

Monetary Policy in the “Checkless” Economy

“…As the diagram suggests, an individual check traverses a tortuous route before returning to its issuer; the average check is handled about ten times during clearing. Ritter and Atkinson (1970, p. 493) have reported that about 90% of the dollar volume of transactions depicted consists of checks. Of these a majority are local and probably do not require the services of a correspondent clearing bank or the Federal Reserve.…”

“…This system has worked for many years and is costly. For the United States, Ritter and Atkinson (1970, p. 494) have reported that check clearing requires an outlay on the order of $4 billion annually and a substantial part of this outlay is borne by the Federal government through services provided by Federal Reserve Banks. The clearing mechanism has experienced at least one recent major technological innovation with the introduction of magnetic ink character recognition equipment.…”