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In financial transactions, a warrant is a written order from a first person that instructs a second person to pay a specified recipient a specific amount of money or goods at a specific time.[1] The warrant may or may not be negotiable and may promise to pay the warrant holder on demand or after a maturity date. Governments may choose to pay wages and other accounts payable by issuing warrants instead of checks.

Contents

History

In the 1700s, warrants were used by the military to authorize payments to soldiers and suppliers. George Washington, for example, signed warrants that ordered quartermasters to deliver money or acquire supplies. [2] These warrants were used by quartermasters to issue vouchers to acquire food, supplies, munitions, clothing, transportation, etc. for the use of the American military and to maintain Washington's headquarters. Warrants could be redeemed by the army paymasters, but most often they were used like cash by the recipient. Warrants, like bills of exchange and vouchers, were often heavily discounted and depreciated in value. The fortunes of war could be traced through the discount rates on warrants, vouchers, and Continental dollars.

The term warrant may continue to be used broadly as an order to pay or an order to deliver goods.

Modern warrants

Sample Registered Warrant

In government finance, a warrant is an order to pay that instructs a federal, state, or county government treasurer to pay the warrant holder on demand or after a maturity date. Such warrants look like checks and clear through the banking system like checks, but are not drawn against cleared funds in a checking account (demand deposit account). Instead they may be drawn against "available funds" or "out of fund 0027" so that the issuer can collect interest on the float or delay redemption. If the warrant is conditional on funds being available, the warrant is not a negotiable debt instrument. In the U.S., warrants are issued by government entities such as the military and state and county governments. Warrants are issued for payroll to individuals, accounts payable to vendors, to local governments, to taxpayers receiving tax refunds, and to owners of unclaimed money. A warrant differs from a check in that the warrant is not drawn on a checking account, is not necessarily payable on demand, and may not be negotiable.[3] [4]

Warrants deposited in a bank are routed (based on the MICR routing number) to a collecting bank which processes them as collection items like maturing treasury bills and presents the warrants to the government entity's treasury department for payment to the bank each business day.

Regular warrants are redeemable by the government treasurer after they are issued. "Registered Warrants" bear interest and need not be redeemed by the treasurer until the warrant maturity date.[5] If warrants cannot be immediately redeemed by the issuing entity, the collecting bank may accept the warrants as short term debt instruments and collect interest when redeemed in accordance with a prior agreement. The collecting bank may refuse to accept a warrant issue, in which case other banks may also refuse to accept them. [6]

"The warrants of a municipal corporation are not negotiable instruments. They do not constitute a new debt, or evidence of a new debt, but are only the prescribed means devised by law for drawing money from the treasury."[7]

The U.S. Securities and Exchange Commission said on July 9, 2009 that California's Registered Warrants are "securities" under federal securities law and will be regulated as municipal securities by the Municipal Securities Rulemaking Board.[8] Under these regulations anybody who profits by buying and reselling warrants must be registered as a municipal securities broker-dealer.[9]

Although Registered Warrants are evidence of a municipality's obligation to pay, because they demonstrate an intent to disburse funds when those funds become available, the US Supreme Court has ruled that a holder of a valid warrant cannot obtain a writ of mandamus for specific performance of the obligation to pay, enforced against a treasurer or other employee of the municipality.[10]

In the United Kingdom

In the UK, warrants are issued as payment by the NS&I when a Premium Bond is chosen.

The difference between a warrant and a cheque is that a cheque usually places no explicit time frame on when the amount is to paid.

In Canada

See also

External links

References

  1. ^ Oxford English Dictionary, 1971.
  2. ^ Revolutionary War Warrant Books of George Washington, 1775-1776
  3. ^ "Check". Glossary of Accounting terms. A-Z-Dictionaries.com. 2005. http://a-z-dictionaries.com/glossaries/Accounting_Glossary.html#check. Retrieved 26 May 2009.   See also "Warrant"
  4. ^ "Warrant". Glossary of Accounting terms. A-Z-Dictionaries.com. 2005. http://a-z-dictionaries.com/glossaries/Accounting_Glossary.html#warrant. Retrieved 26 May 2009.   See also "Check"
  5. ^ Frequently Asked Questions about Registered Warrants
  6. ^ California IOU holders
  7. ^ First National Bank v. Cook, 43 Neb. 318, 61 N.W. Rep. 693. 12 B.L.J. 151.
  8. ^ SEC press release
  9. ^ California IOUs considered securities SEC says
  10. ^ Raton Waterworks Co. v. Raton, 174 US 360.
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