Discounting of Bills of Exchange

Discounting of Bills of Exchange 

in capitalist countries, the purchase of bills of exchange by banks before maturity (seeCREDITING OF NOTES). The bank pays less than the nominal value of the bill, deducting a certain percentage for interest. At maturity, the bank collects the full nominal value from the drawee. The discounting of bills expands commercial credit and speeds up the circulation of capital. At the same time, the discounting of commercial paper and especially of finance bills encourages speculation, increases the anarchy of capitalism, and hastens the onset of economic crises.

In the age of the general crisis of capitalism, the proportion of bank assets represented by long-term loans and investments in securities of various types has increased, while that represented by discounted bills has decreased. At the same time, the structure of discounting has changed, with the discounting of treasury bills becoming increasingly important. The proceeds from the sale of these bills are used by governments for such purposes as financing military expenditures and covering budget deficits.