Robert Hettinga writes:
So, let's look at this for a second. First, a check is a kind of certificate pointing to a book entry in a bank somewhere, payable upon demand.
Actually, it isn't. Its an instruction to the bank to pay to someone's order. Note that the existance of a check doesn't guarantee that there are funds in the bank that can pay. The check isn't a certificate of the existance of funds -- only of the existance of an order by the account holder.
A note or commercial paper is a promise to pay money plus interest, cash included, at a certain time in the future. So's a bond, but the duration is longer. It's easy to see how they're all certificates, though they can be held at a clearinghouse and thus be be book-entries.
Well, the point that I'm trying to make is that a bond certificate is, provided you don't think its a forgery, an actual bond. It isn't, however, the actual underlying money, because the issuer can default. If someone is trying to buy a bond the bond certificate in some sense allows you to clear the transfer, but it clears the transfer of the bond, not the payment of the obligation. I'm probably being a bit obtuse here, but I suspect my point is made... Perry