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A traveller's cheque is a
medium of exchange In economics, a medium of exchange is any item that is widely acceptable in exchange for goods and services. In modern economies, the most commonly used medium of exchange is currency. Most forms of money are categorised as mediums of exchange, i ...
that can be used in place of the currency of a country. Each
cheque A cheque (or check in American English) is a document that orders a bank, building society, or credit union, to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing ...
is denominated in a preprinted fixed, round, amount of one of a number of major world currencies; it has two panels for a signature. The purchaser signs one panel of each cheque on receiving it; to use it, it is signed on the second panel and dated in the presence of the payee, who accepts it if the signatures match. It can then be deposited into a bank account in the same way as a normal cheque; payment was guaranteed if the signatures matched, even if a cheque had been used fraudulently, for example stolen, encouraging merchants to accept them routinely. While it was possible for the issuer to go out of business, invalidating cheques, most issuers were large, stable, businesses. Traveller's cheques were widely used from the 1850s to the 1990s by people travelling in foreign countries instead of cash, mainly before the introduction of
payment card Payment cards are part of a payment system issued by financial institutions, such as a bank, to a customer that enables its owner (the cardholder) to access the funds in the customer's designated bank accounts, or through a credit account and ...
s and later electronic methods of payment. They were much safer for the traveller as their value would be reimbursed if stolen, unlike cash. A book of cheques of different amounts would be carried, to be cashed or spent as required. They could be exchanged for local currency at a bank, and many merchants accepted them as payment. The financial institutions issuing traveller's cheques earn income in a number of ways. They charge a fee on sale of such cheques, and earn interest on purchased but as yet uncashed cheques, effectively an interest-free loan. Traveller's cheques in other currencies than the purchaser's applied a profitably unfavourable foreign exchange rate. The cheque issuer's exchange rate risk can be hedged with currency future contracts. Traveller's cheques were used before payment cards were introduced, and were more profitable to the issuer. Their use has been in decline since technology introduced more convenient methods of payment, starting with payment cards (
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
,
debit Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a cred ...
, and pre-paid currency cards), money transfer services,
automated teller machine An automated teller machine (ATM) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, funds transfers, balance inquiries or account ...
s that accept foreign cards, and ultimately electronic payment methods. Also, as interest rates sharply declined in many developed countries in the late 20th and early 21st centuries, traveller's cheques became less profitable and were scaled back or discontinued. The rise of more convenient methods of payment led to traveller's cheques no longer being widely accepted in payment or cashed. Cheques issued have unlimited validity, and can always be cashed by their issuer so long as it is still in business, even if issuing has ceased.


Terminology

Legally, the parties to traveller's cheque transactions are as follows. The organisation that produces a traveller's cheque is the ''obligor'' or ''issuer''. The bank or other place that sells it is the ''agent'' of the issuer. The
natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...
who buys the cheque is the ''purchaser''. The entity to whom the purchaser hands the cheque in payment for goods or services is the ''payee'' or ''merchant''. For purposes of clearance, the obligor is both ''maker'' and ''drawee''.


History

Traveller's cheques were first issued on 1 January 1772 by the London Credit Exchange Company for use in 90 European cities, and in 1874,
Thomas Cook Thomas Cook (22 November 1808 – 18 July 1892) was the founder of the travel agency Thomas Cook & Son. He was born into a poor family in Derbyshire and left school at the age of ten to start work as a gardener's boy. He served an appren ...
was issuing " circular notes" that operated in the manner of traveller's cheques.
American Express American Express Company or Amex is an American bank holding company and multinational financial services corporation that specializes in payment card industry, payment cards. It is headquartered at 200 Vesey Street, also known as American Expr ...
developed a large-scale international traveller's cheque system in 1891, to supersede the traditional letters of credit. It is still the largest issuer of traveller's cheques today by volume. American Express's introduction of traveller's cheques is traditionally attributed to employee Marcellus Flemming Berry, after company president J. C. Fargo had problems in smaller European cities obtaining funds with a letter of credit. Between the 1850s and the 1990s, traveller's cheques became one of the main ways that people took money on holiday for use in foreign countries without the risks associated with carrying large amounts of cash. They also had the advantage of being available in smaller denominations for travelers of more modest means, in an era when the well off tended to carry letters of credit. Several companies introduced traveller's cheques; the most familiar of those in the 20th century were
Thomas Cook Group Thomas Cook Group plc was a global travel group, headquartered in the United Kingdom and listed on the London Stock Exchange from its formation on 19 June 2007 by the merger of Thomas Cook AG — successor to Thomas Cook & Son — and ...
,
Bank of America The Bank of America Corporation (Bank of America) (often abbreviated BofA or BoA) is an American multinational investment banking, investment bank and financial services holding company headquartered at the Bank of America Corporate Center in ...
and American Express.


Usage


Purchasing cheques

Traveller's cheques are sold by banks and agencies to customers for use at a later time. Upon obtaining custody of a purchased supply of traveller's cheques, the purchaser immediately signs each cheque. The purchaser also receives a receipt and other documentation that should be kept in a safe place other than where they carry the cheques. Traveller's cheques can usually be replaced if lost or stolen by providing the receipt issued with their purchase, showing the
serial number A serial number (SN) is a unique identifier used to ''uniquely'' identify an item, and is usually assigned incrementally or sequentially. Despite being called serial "numbers", they do not need to be strictly numerical and may contain letters ...
s allocated.


Using cheques

To make a purchase or cash a cheque, the purchaser, in the presence of the payee, dates and countersigns the cheque.


Denomination and change

Traveller's cheques are available in several currencies such as
US dollars The United States dollar (symbol: $; currency code: USD) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it int ...
,
Canadian dollar The Canadian dollar (currency symbol, symbol: $; ISO 4217, code: CAD; ) is the currency of Canada. It is abbreviated with the dollar sign $. There is no standard disambiguating form, but the abbreviations Can$, CA$ and C$ are frequently used f ...
s,
pounds sterling Sterling (Currency symbol, symbol: Pound sign, £; ISO 4217, currency code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound is the main unit of account, unit of sterling, and the word ''Pound (cu ...
,
Japanese yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar and the euro. It is also widely used as a third reserve currency after the US dollar and the euro. Th ...
,
Chinese yuan The renminbi ( ; currency symbol, symbol: Yen and yuan sign, ¥; ISO 4217, ISO code: CNY; abbreviation: RMB), also known as the Chinese yuan, is the official currency of the China, People's Republic of China. The renminbi is issued by the Peop ...
and
euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, currency code: EUR) is the official currency of 20 of the Member state of the European Union, member states of the European Union. This group of states is officially known as the ...
s; denominations usually being 20, 50, or 100 (× 100 for yen) of whatever currency, and are usually sold in pads of five or ten cheques, e.g., 5 × €20 for €100. Traveller's cheques do not expire, so unused cheques can be kept by the purchaser to spend at any time in the future. The purchaser of a supply of traveller's cheques effectively gives an interest-free loan to the issuer, which is why it is common for banks to sell them "commission free" to their customers. The commission, where it is charged, is usually 1–2% of the total face value sold. Any change for a purchase transaction would usually be given in the local currency.


Deposit and settlement

A payee receiving a traveller's cheque would follow its normal procedures for depositing cheques into its bank account: usually, endorsement by stamp or signature and listing the cheque and its amount on the deposit slip. Where the payee is equipped to process cheques electronically (''see:'' US
Check 21 Act The Check Clearing for the 21st Century Act (or Check 21 Act) is a United States federal law, , that was enacted on October 28, 2003 by the 108th U.S. Congress. The Check 21 Act took effect one year later on October 28, 2004. The law allows t ...
), this can normally be done with traveller's cheques.


Security issues

One of the main advantages traveller's cheques provide is replacement if lost or stolen. However, this has created an opportunity for fraud: a thief buys traveller's cheques, sells them at a lower price than their face value, and falsely reports the cheques stolen. The cost of buying the cheques is refunded, and the price they were fraudulently sold at is the thief's profit. Some purchasers have found the process of filing a claim for lost or stolen cheques to be cumbersome, and several report being left without recourse after their cheques were lost or stolen and their claims refused.


Alternatives

Most modern forms of payment can be used internationally; in particular, payment cards. In 2005, American Express released the ''American Express Travelers Cheque Card'', a
stored-value card A stored-value card (SVC) or cash card is a payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution. This means no network access is required by the payment collection termi ...
that serves the same purposes as a traveller's cheque, but can be used in stores like a credit card. It discontinued the card in October 2007. A number of other financial companies went on to issue stored-value or pre-paid debit cards containing several currencies that could be used like credit or debit cards at shops and at ATMs, mimicking the traveller's cheque in electronic form. One of the major examples is the Visa TravelMoney card.


See also

*
Cashier's check A cashier's check (or cashier's cheque, cashier's order, official check; in Canada, the term ''bank draft'' is used, not to be confused with Banker%27s draft as used in the United States) is a check guaranteed by a bank, drawn on the bank's own f ...
*
Certified check A certified check (or certified cheque) is a form of check for which the bank verifies that sufficient funds exist in the payer's account to cover the check, and so certifies, at the time it is written. Those funds are then set aside in the bank' ...
* Circular letter of credit * Eurocheque *
Money order A money order is a directive to pay a pre-specified amount of money from prepaid funds, making it a more trusted method of payment than a cheque. History Systems similar to modern money orders can be traced back centuries. Paper documents known ...


References

{{Authority control Cheques Travel gear 1770s introductions British inventions