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Document Type

Article

Abstract

The process, or art, of "check-kiting" is commonplace and is closely related to the concept of float. "Kiters" write checks without sufficient funds in their accounts, intending to find the money before the checks clear. This may be why float has been referred to as ''that life raft for the hard-pressed billpayer" (Business Week, 1972, p. 51). It gives billpayers the use of money they don't actually have (or allows them to keep their money invested elsewhere for a greater length of time).

Float arises out of the check-clearing process. Checks may be cleared in one of four different ways (Hoel, 1975, p. 247). Banks may settle with each other by sending checks directly to the bank on which they are drawn or by sending checks to correspondent banks which provide clearing services. Clearing checks through a clearing association of which the bank is a member is a third possibility. Finally, checks may be cleared through the Federal Reserve System (the Fed).

This article deals only with Federal Reserve float and, consequently, is concerned only with those checks that are cleared through the Fed. This is no trivial matter as, according to Cathcart, the Federal Reserve clears more than ten billion checks each year (1982, p. 366).

Publication Date

1988

Journal Title

Draftings In

Volume

3

Issue

3

First Page

17

Last Page

26

Comments

This issue is also considered v.4 of the initial publication series of Major Themes in Economics.

Copyright

© 1988 by the Board of Student Publications, University of Northern Iowa

Language

en

File Format

application/pdf

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