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.

References in periodicals archive ?
This naturally led to a steady decline in discounting of bills of exchange from other towns.
Virginia's acts of 1777 and 1785 prohibited the issuance of bills of credit or other forms of paper money by individuals or organizations without legislative sanction, but they did not prohibit either deposit taking or the private discounting of bills of exchange and promissory notes.(13) Apparently, however, these two acts failed to dissuade a number of partnerships or companies chartered for other purposes from issuing their own forms of paper money, as the earlier acts were revised in 1816 and the new law more clearly laid out those banking activities considered legal?
In the antebellum era, lending took place predominantly through the discounting of bills of exchange and promissory notes and a knowledge of the business was crucial for success.