Tagged: Payments Systems


Understanding Intermediaries in Payment Systems — Introducing Liquidity to Law Students

So as I noted a few days ago, one of my annual rites of passage is returning to the University of Missouri each summer to teach Modern Payment Systems.  (Its always interesting to hear different people recall what the course was called when they were in law school — commercial paper, negotiable instruments, Commercial Payments, but I digress). This year, I decided to do something I have not ventured to do — teach the class through an article that I am writing on the role of payment intermediaries in consumer transactions.  (As an aside, I believe the material came across far more dynamic).

Each year, I introduce the course by starting with the central policies of liquidity and certainty as pillars of all payments systems.  Students that have had an economics background know certainty as the legal cornerstone to efficiency — but fewer students understand what liquidity is beyond the pale of converting something to cash; they don’t for example understand that liquidity can mean enabling something with cash-like qualities.  To explain liquidity (one of the central promises of negotiability) I turned the class into a mini-bazaar.  As a condition of staying in the class they must barter something to me in exchange for a cup full of M&M’s.  By exchanging goods, I tell them, we have established economic worth and created new wealth — I know my cup of M&M’s is worth a highlighter, bookmark, Lexis Flash Drive, or Starbucks card as the case may be. But, our economy has a problem — there is no certainty in the transaction.   A cup of M&M’s might be worth a highlighter to one, a flash drive or Starbucks Card to the next person.   The economy is far too personal to be effective as a predictive wealth creation tool.

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