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Payment Systems

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Handbook of Cliometrics

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Abstract

The payments system is the complex of financial instruments and relationships that transfer value between buyers and sellers to complete their transactions. The character and reliability of the payments system, the rules, practices, and institutions by and through which value is transferred from payors to payees, is obviously a crucial underpinning to a market economy. Cash is the simplest means of payment. However, the vast majority of transactions, especially in developed economies, involve non-cash payments instruments. The use of non-cash instruments in the payments process can take time and involve some risk since they are promises to make future payments. Payments system improvements that reduce costs and/or risks should have a salutary effect on the operations of a market economy.

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Notes

  1. 1.

    In contrast to the “historical” school of political economy which saw three main stages of economic development (and payments): “the prehistorical and early medieval stage when goods were exchanged for other goods; the later medieval state of ‘cash’ (money) economy, when goods were bought for ready money; and the modern stage of credit economy when commercial exchange was based on credit” (Postan 1973, p. 2; also, pp. 21–27).

  2. 2.

    A more comprehensive history of the bill of exchange than that which follows here may be found in Denzel (2010, pp. xxii–xlvi).

  3. 3.

    One other thing about banknotes here. Quinn and Roberds (2003) draw parallels between the development of privately issued banknotes and online currencies more recently, both motivated by the need to conduct transactions with strangers to provide a form of finality, “of being able to extinguish other debts by virtue of their transfer from debtor to creditor.”

  4. 4.

    The Second Bank of the United States notes however had been redeemable at par at any branch, regardless of the city of issue. The fact that their value did not decline with distance made them the paper money of choice for long-distance payments before 1836 (Temin 1969, p. 36).

  5. 5.

    By 2010 Federal Reserve banks processed slightly less than half the value of interbank paid checks.

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Acknowledgements

I would particularly like to thank David Weiman for his thorough, penetrating, and most useful comments.

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Authors and Affiliations

  1. Department of Economics, University of Virginia, 400182, 22904, Charlottesville, VA, USA

    John A. James

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  1. John A. James
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Correspondence to John A. James .

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Editors and Affiliations

  1. BETA/CNRS, University of Strasbourg, Institute for Advanced Study, Strasbourg, France

    Claude Diebolt

  2. University of Wisconsin - La Crosse, La Crosse, Wisconsin, USA

    Michael Haupert

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James, J.A. (2016). Payment Systems. In: Diebolt, C., Haupert, M. (eds) Handbook of Cliometrics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40406-1_13

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