Demand deposit
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Demand depositsorcheckbook moneyare funds held in demand accounts in commercialbanks.These account balances are usually consideredmoneyand form the greater part of the narrowly definedmoney supplyof a country. Simply put, these are deposits in the bank that can be withdrawn on demand, without any prior notice.
History
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In the United States, demand deposits arose following the 1865 tax of 10% on the issuance ofstate banknotes; seehistory of banking in the USA.
In the U.S., demand deposits only refer to funds held inchecking accounts(or cheque offering accounts) other thanNOW accounts;however, in a 1970s and 1980s response to the 1933 promulgation ofRegulation Qin the U.S., demand deposits in some cases came to allow easier access to funds from other types of accounts (e.g.savings accountsandmoney market accounts). For the historical basis of the distinction between demand deposits and NOW accounts in the U.S., seeNegotiable order of withdrawal account.
Money supply
[edit]Demand deposits are usually considered part of the narrowly definedmoney supply,as they can be used, viachecksand 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 offinancial 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 theGreat 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
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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.ISBN0-691-00354-8.
- ^"Federal Reserve Bank statistics".federalreserve.gov.Retrieved18 March2010.
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