Demand deposits orcheckbook money are funds held indemand accounts incommercial banks. These account balances are usually consideredmoney and form the greater part of the narrowly definedmoney supply of a country. Simply put, these are deposits in the bank that can be withdrawn on demand, without any prior notice.
In the United States, demand deposits arose following the 1865 tax of 10% on the issuance ofstate bank notes; 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 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 andmoney market accounts). For the historical basis of the distinction between demand deposits and NOW accounts in the U.S., seeNegotiable order of withdrawal account.
Demand deposits are usually considered part of the narrowly definedmoney supply, as they can be used, viachecks 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 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]
Authority control databases: National |
|---|
