Demand deposits or checkbook money are funds held in demand accounts in

commercial banks A commercial bank is a financial institution that accepts Deposit (finance), deposits from the public and gives loans for the purposes of consumption and investment to make a Profit (economics), profit. It can also refer to a bank or a division o ...

. These account balances are usually considered

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...

and form the greater part of the narrowly defined

money supply In macroeconomics, money supply (or money stock) refers to the total volume of money held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation (i ...

of a country. Simply put, these are deposits in the bank that can be withdrawn on demand, without any prior notice.

History

In the United States, demand deposits arose following the 1865 tax of 10% on the issuance of

state bank In Australia and the United States, a state bank in a federated state is usually a financial institution that is chartered by the government of that state, as opposed to one regulated at the federal or national level. In British English, the ter ...

notes; see history of banking in the USA. In the U.S., demand deposits only refer to funds held in

checking account A transaction account (also called a checking account, cheque account, chequing account, current account, demand deposit account, or share account at credit unions) is a deposit account or bank account held at a bank or other financial instituti ...

s (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 account A savings account is a bank account at a retail banking, retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditi ...

s and

money market account A money market account (MMA) or money market deposit account (MMDA) is a deposit account that pays interest based on current interest rates in the money markets. The interest rates paid are generally higher than those of savings accounts and tra ...

s). For the historical basis of the distinction between demand deposits and NOW accounts in the U.S., see

Negotiable order of withdrawal account In the United States, a negotiable order of withdrawal account (NOW account) is an interest-paying deposit account on which an unlimited number of checks may be written. A negotiable order of withdrawal is essentially identical to a check drawn on ...

Money supply

Demand deposits are usually considered part of the narrowly defined

, 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. Krugman, Paul R., and Robin Wells. Economics. New York: Worth, 2006. Print. During times of

financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with Bank run#Systemic banki ...

, 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 The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...

. However, during the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

, 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.

References

{{DEFAULTSORT:Demand Deposit Bank deposits Monetary reform cs:Vklad#Vklad na požádání a termínovaný vklad

History

Money supply

See also

References