Traveller's cheque

A traveller's cheque is a medium of exchange that can be used in place of the currency of a country. Each cheque 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 cards 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, debit, and pre-paid currency cards), money transfer services, automated teller machines 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.