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From Drafts to Checks: The Evolution of Correspondent Banking Networks and the Formation of the Modern U.S. Payments System, 1850–1914
Author(s) -
JAMES JOHN A.,
WEIMAN DAVID F.
Publication year - 2010
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2009.00286.x
Subject(s) - settlement (finance) , payment , payment system , market liquidity , spanish civil war , externality , business , economics , monetary economics , finance , political science , law , microeconomics
Checks remained local payments instruments throughout virtually the entire nineteenth century. Their significant use in interregional transactions dates only to the 1890s. We explain their lagged spatial diffusion by the evolution of centralized payments institutions to coordinate transactions among myriad banks, not real technological changes to “annihilate” distance. The pivotal institutions were large correspondent banks, especially in New York. After the Civil War, New York funds constituted a national settlement medium, and the concentration of bankers’ balances in New York yielded liquidity and other externalities smoothing the flow of check payments.