Demand deposit: Difference between revisions
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'''Demand deposits''' or ''' |
'''Demand deposits''' or '''checkbook money''' are funds held in demand accounts in commercial [[Bank|banks]]. These account balances are usually considered [[money]] and form the greater part of the narrowly defined [[money supply]] of a country. Simply put, these are deposits in the bank that can be withdrawn on demand, without any prior notice. |
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==History== |
==History== |
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[[File:US bank deposits 1995-2012.png|thumb|U.S. demand deposits at [[commercial bank]]s, 1995–2012]] |
[[File:US bank deposits 1995-2012.png|thumb|U.S. demand deposits at [[commercial bank]]s, 1995–2012]] |
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In the United States, demand deposits arose following the 1865 tax of 10% on the issuance of [[state bank]] notes; see [[Banking in the United States#The dual banking system – 1860s|history of banking in the USA]]. |
In the United States, demand deposits arose following the 1865 tax of 10% on the issuance of [[State bank (United States)|state bank]] notes; see [[Banking in the United States#The dual banking system – 1860s|history of banking in the USA]]. |
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In the U.S., demand deposits only refer to funds held in [[checking account]]s (or cheque offering accounts) other than [[Negotiable order of withdrawal account|NOW accounts]]; however, in a 1970s and 1980s response to the 1933 promulgation of [[Regulation Q]] in the U.S., demand deposits in some cases came to allow easier access to funds from other types of accounts (e.g. [[savings account]]s and [[money market account]]s). For the historical basis of the distinction between demand deposits and NOW accounts in the U.S., see [[Negotiable order of withdrawal account#History]]. |
In the U.S., demand deposits only refer to funds held in [[checking account]]s (or cheque offering accounts) other than [[Negotiable order of withdrawal account|NOW accounts]]; however, in a 1970s and 1980s response to the 1933 promulgation of [[Regulation Q]] in the U.S., demand deposits in some cases came to allow easier access to funds from other types of accounts (e.g. [[savings account]]s and [[money market account]]s). For the historical basis of the distinction between demand deposits and NOW accounts in the U.S., see [[Negotiable order of withdrawal account#History|Negotiable order of withdrawal account]]. |
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==Money supply== |
==Money supply== |
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Demand deposits are usually considered part of the narrowly defined [[money supply]], as they can be used, via [[cheque|checks]] and drafts, as a means of payment for goods and services and to settle debts. The money supply of a country is usually defined to consist of currency plus demand deposits. In most countries, demand deposits account for a majority of the money supply.<ref name="Krugman">[[Paul Krugman|Krugman, Paul R.]], and Robin Wells. Economics. New York: Worth, 2006. Print.</ref> |
Demand deposits are usually considered part of the narrowly defined [[money supply]], as they can be used, via [[cheque|checks]] and drafts, as a means of payment for goods and services and to settle debts. The money supply of a country is usually defined to consist of currency plus demand deposits. In most countries, demand deposits account for a majority of the money supply.<ref name="Krugman">[[Paul Krugman|Krugman, Paul R.]], and Robin Wells. Economics. New York: Worth, 2006. Print.</ref> |
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During times of financial crisis, bank customers will withdraw their funds in cash, leading to a drop in demand deposits and a shrinking of the money supply. Economists have speculated that this effect contributed to the severity of the [[Great Depression]].<ref>{{cite book|title=Monetary History of the United States, 1867–1960|first=Milton|last=Friedman|publisher=Princeton University Press|date=1 November 1971|isbn=0-691-00354-8}}</ref> |
During times of [[financial crisis]], bank customers will withdraw their funds in cash, leading to a drop in demand deposits and a shrinking of the money supply. Economists have speculated that this effect contributed to the severity of the [[Great Depression]].<ref>{{cite book|title=Monetary History of the United States, 1867–1960|first=Milton|last=Friedman|publisher=Princeton University Press|date=1 November 1971|isbn=0-691-00354-8}}</ref> |
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This did not happen, however, in the financial crisis that began in 2008. In fact, demand deposits in the U.S. increased dramatically, from around $ |
This did not happen, however, in the financial crisis that began in 2008. In fact, demand deposits in the U.S. increased dramatically, from around $310 billion in August 2008 to a peak of around $460 billion in December 2008.<ref>{{cite web |url=http://www.federalreserve.gov/releases/h6/hist/h6hist7.htm |title=Federal Reserve Bank statistics |publisher=federalreserve.gov |access-date=18 March 2010 }}</ref> |
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==See also== |
==See also== |
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Latest revision as of 03:13, 15 March 2024
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Demand deposits or checkbook money are funds held in demand accounts in commercial banks. These account balances are usually considered money and form the greater part of the narrowly defined money supply of a country. Simply put, these are deposits in the bank that can be withdrawn on demand, without any prior notice.
History
[edit]
In the United States, demand deposits arose following the 1865 tax of 10% on the issuance of state bank notes; see history of banking in the USA.
In the U.S., demand deposits only refer to funds held in checking accounts (or cheque offering accounts) other than NOW accounts; however, in a 1970s and 1980s response to the 1933 promulgation of Regulation Q in the U.S., demand deposits in some cases came to allow easier access to funds from other types of accounts (e.g. savings accounts and money market accounts). For the historical basis of the distinction between demand deposits and NOW accounts in the U.S., see Negotiable order of withdrawal account.
Money supply
[edit]Demand deposits are usually considered part of the narrowly defined money supply, as they can be used, via checks and drafts, as a means of payment for goods and services and to settle debts. The money supply of a country is usually defined to consist of currency plus demand deposits. In most countries, demand deposits account for a majority of the money supply.[1]
During times of financial crisis, bank customers will withdraw their funds in cash, leading to a drop in demand deposits and a shrinking of the money supply. Economists have speculated that this effect contributed to the severity of the Great Depression.[2]
This did not happen, however, in the financial crisis that began in 2008. In fact, demand deposits in the U.S. increased dramatically, from around $310 billion in August 2008 to a peak of around $460 billion in December 2008.[3]
See also
[edit]
References
[edit]- ^ Krugman, Paul R., and Robin Wells. Economics. New York: Worth, 2006. Print.
- ^ Friedman, Milton (1 November 1971). Monetary History of the United States, 1867–1960. Princeton University Press. ISBN 0-691-00354-8.
- ^ "Federal Reserve Bank statistics". federalreserve.gov. Retrieved 18 March 2010.
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