Academic journal article Canadian Social Science

On the Ownership of Funds in Transit in the Payment and Settlement

Academic journal article Canadian Social Science

On the Ownership of Funds in Transit in the Payment and Settlement

Article excerpt

Abstract

Payment and settlement will produce issues regarding funds in transit. When we study the ownership of funds in transit, we shall clarify the nature of monetary property, the ownership of deposit money and the significance of bank accounts. Money is independent property and it is not a "material object". Its core is credited. Deposit money is based on bank accounts and it is liminal independent monetary property. Since a depositor deposits legal currency into a bank, the bank has gained the property rights to the legal currency while the depositor will get the control rights over the deposited currency. Deposit currency and statutory currency are in an equal and freely convertible relationship. This equal and freely convertible relationship and interest income are derived from the credit diminution rather than from anything else. To pay the settlement by using deposit currency will result in problems of funds in transit. Funds in transit are neither in the payer's account nor the payee's account. They are in the bank's settlement process. Due to the homogeneity of currency, the control rights over funds in transit can only be held by the bank and the payer holds only statutory non-dominant rights.

Key words: Currency property; Deposit currency; Bank account; Credit diminution; Funds in transit; Payment and settlement

INTRODUCTION

Any payment and settlement will produce issues regarding funds in transit, that is, in the transfer process of funds from the payer to the payee, funds need to be transferred to the recipient through a bank or a third party payment organization. After the transfer of funds from the payer's account and before funds reach the payee's account, there is actually a time lag process. Funds in this process are funds in transition in payment and settlement. Regarding the ownership of funds in transit, there are controversial points in the theoretical field. First, funds in transit are monetary property; therefore, when we study funds in transit, we shall study the nature of monetary property. Second, funds in transit are deposit currency; therefore, we also need to study the ownership of deposit currency. Third, funds in transit are money outside of accounts; therefore, we shall study deposit accounts. Finally, funds in transit are monetary property in the process of payment and settlement; therefore, we need to have a general understanding of payment and settlement.

1. UNDERSTANDING MONETARY PROPERTY

Regarding the nature of currency, the mainstream views of theorists and practitioners in China still stay at the understanding of the real rights of currency, which results in the understanding of the legal relationship in payment and settlement also just stays at the credits and liabilities. However, the development of currency has been far beyond the scope of the understanding of real rights. Traditionally, Chinese law experts have considered currency as a "material object". "Currency in law is a material object and it is a special moveable asset" (Liang, 1996, p.86; Wang, 2002, p.34). Meanwhile, it is considered that currency is an indefinite object of high degree of substitutability. "Currency is a special indefinite object and typical consumer object". (X. Z. Zhou «fe J. Zhang, 2005) "Indefinite objects refer to things which are determined by variety, quality, specifications or weights and measures without specific designation." (Zhang, 2000)

In different historical periods, currency displays in different forms and it has undergone the development process of physical currency, metal currency, currency securities, credit currency and electronic currency (Liu «fe Wang, 2009). In the credit currency stage, its symbolic significance continues to rise, the essence of which is the highlighting process of the credit value of currency. The prominent indication of this process is dematerialization. On the one hand, this is determined by the development of technical means, but more importantly, it is the result of the nature of currency. …

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