Global Trade Center

Because of the bad check problem, personal checks may be unacceptable in some transactions. For example, if you buy a car the dealer may insist on a certified check. This is a promise to pay from the bank itself. The U.S. Postal Service and some private issuers offer similar instruments in the form of money orders.

The traveler’s check is a related form of payment. Like a certified check, a traveler’s check is a promise to pay on the part of the issuer, not the payer. Traveler’s checks are issued in small denominations and insured against loss or theft. (They can be seen as a kind of insured private banknote.) traveler’s checks are issued by
banks and by other financial institutions. The largest issuer is American
Express, which is not a bank.

To obtain a certified check, money order, or traveler’s check, it is usually necessary to pay the issuer in advance. Since such payment may be made incash, these payment instruments are available to those who do not own bank deposits certified checks, money orders, and traveler’s checks clear through the check-clearing system much like ordinary checks.

Another way to reduce the problem of bad checks is the overdraft. This is a line of credit that is automatically drawn upon if there are insufficient funds in the customer’s deposit to cover a check.

 Overdraft facilities, too, are more common overseas than they are in the United States. As an alternative to an overdraft, many U.S. banks offer the following arrangement: if there are insufficient funds to cover a check, the bank automatically transfers money from another account, say a savings account, charging the ustomer a transfer fee.

In some countries, the problem of bounced checks is addressed through criminal penalties. In Japan, for exaple, if you bounce tow checks in a 6-month period you are liable to 2 years of probation. In Taiwan, the penalties are sufficiently server that postdated checks are used as loan contracts. There is, in Taiwan, an informal or “curb” market for loans outside the highly regulated official financial system. In this curb market, a lender will hand over a sum of money in exchange for a check that is dated o the day the loan comes due (say a year later). The amount of the check includes principal plus interest