When it comes to personal and business debts, one way to settle them is through the use of negotiable instruments. A negotiable instrument is a promissory note or draft that can be transferred from one person to another as an instrument of payment or discharge of debt. These instruments have been around for centuries, with the first known use traced back to medieval China.
According to the Black Law Dictionary, negotiable instruments are defined as “a written document that contains an unconditional promise or order to pay a specified amount of money upon demand or at a specified time to the bearer or to a designated person or order.” In other words, they are a form of payment that can be easily transferred and used by anyone who holds them.
In the United States, the Federal Reserve Bank plays a crucial role in facilitating the use of negotiable instruments. The Fed is responsible for regulating the monetary policy of the country, and part of that includes the regulation of financial institutions and the payment system. This is directly connected to the use of negotiable instruments because they are often associated with the exchange of money between banks and other financial institutions.
The Security Exchange Act of 1934 also plays a role in the use of negotiable instruments. This act established the Securities and Exchange Commission (SEC) as a regulatory body overseeing the securities industry in the US. Since negotiable instruments can be securitized and turned into bonds, the SEC has a responsibility to regulate their issuance and trading to ensure that they are not being used fraudulently.
Today, negotiable instruments are widely used in the payment of personal and business debts. They can take different forms, such as checks, promissory notes, bills of exchange, and certificates of deposit. When someone uses a negotiable instrument to pay off a debt, they essentially transfer the obligation to pay from themselves to the holder of the instrument.
The use of negotiable instruments has its advantages and disadvantages. On the plus side, they are a convenient and efficient way to settle debts, especially when dealing with large amounts of money or when parties involved are not physically present in the same place. On the downside, they can be subject to fraud and abuse, which is why proper regulation is necessary to prevent their misuse.
In conclusion, negotiable instruments have been around for centuries and continue to be an important part of the payment system in the US and around the world. Their use is regulated by various entities, including the Federal Reserve Bank and the SEC, to ensure that they are used appropriately. While they have their pros and cons, they remain a valuable tool in discharging personal and business debts.
