Deposits are circulated by checks or drafts - that is, orders to pay, which are not necessarily obligations of the bank until accepted, certified, or honored by the bank, and anyone who is offered a check may doubt the drawer's right to draw and the bank's ability or willingness to pay. Moreover, checks are drawn in odd sums, large and small, and are difficult to use in exchange. The result is that checks have a limited acceptability - particularly in the country or in backward communities; whereas bank notes, being direct obligations of well-known institutions, in sums of convenient size, and not necessitating indorsement, have a general acceptability and pass current as money.
On the other hand, checks combine safety and convenience in ways that bank notes do not. The requirement of indorsement renders theft of a check useless to the thief unless he resorts to the further crime of forgery. The security of the check is increased with every indorsement, which makes it both individual credit and bank credit, whereas the bank note is wholly bank credit. Another advantage of the check is that the voucher is a receipt of payment, and still another advantage is that any amount, large or small, in odd or even sum, can be paid by check with equal facility.
Another difference between the two lies in the circumstance that the depositor becomes a creditor of the bank voluntarily and, being usually a person of business capacity, selects his bank with more or less acumen, whereas a noteholder becomes a creditor of a bank unconsciously, for the most part, since the note passes current by custom. Then, too, deposits are peculiar to the business and higher classes, while bank notes are used relatively more by a lower class and get into the hands of persons who know little if anything of bank note issue or of banking in general.
Finally bank checks and drafts, having but limited acceptability, are soon presented for acceptance or redemption; the bank accordingly constantly faces the necessity of providing a reserve for this purpose. Furthermore, when once received by a bank, unlike bank notes, they cannot be paid out again to customers nor can they be used for reserves. For its own protection, therefore, and to make maximum use of funds, the checks are immediately collected by the bank. Bank notes, however, enjoy a greater credit and acceptability. They circulate over a broad field, they are paid out again by receiving banks unless prohibited by law, and they may even be legally used as bank reserve for other than the issuing bank; consequently they remain out in circulation for long periods. Their higher credit removes the motive of presenting for redemption. Meanwhile the bank has felt less necessity for keeping a big reserve or any reserve at all, trusting to be able to meet the few redemptions by use of the casual till money. Under such conditions there is great danger of failure of the issuing bank a danger which grows apace with the period over which the notes stay out.