El Paso herald. (El Paso, Tex.) 1901-1931, 1910-03-19
DISCOUNT SYSTEM
Of EUROPEAN
BANKS
National Monetary Commits
mission Issues Statement
on Foreign Methods.

Washington, D. c., March 19.-An
Illuminating discussion Of certain fea-
lures Of banking policy which are COM
mon to the banking systems of all
European countries is presented in a
monograph written by Paul NJ War
burg, Of the banking firm of Kuhn.
Loeb & Co., Of New York. and about to
be made public by the National None
tary commission. The monograph is
entitled, The Discount System in
Europe"
discounts" it is declared, represent
-or. like our promissory notes. ought
always to represent-temporary indebt-
edness which is to be paid off by the
liquidation of the business transaction
for the carrying out OF which the loan
was incurred. A bill may be drawn for
cotton while IL is being harvested, or
while il is in transit for. Europe. or
while 1T is being manufactured into
yarn, or while the merchant that pur-
chased the finished article continues to
owe the manufacturer therefor, or, pos
sibiy, even while the finished article is
being shipped back to the same coun-
try from which the raw product origin
ally came
To bridge each Of these periods a long
bill may be drawn by the various
parties who each in turn handle the
goods on their way from their original
state to their place Of final distribution.
The length of the bill will depend on
the underlying transaction. In England.
France, and Germany 1t varies. as
rule, between two and four months, the
vast majority of surh paper being is
sued for three month";
No Single Name Paper.
With us the promissory note is gen.
orally one-name paper, while in Europe
single-name paper is looked upon with
distrust and is scarcely purchased at all
by the banks. The European banker
believes in having several signatures on
the bill that he buys, thus securing
more than one guaranty. Furthermore,
additional signatures are evidence or
the legitimate character Of the paper
and show that the money was taken for
a temporary transaction, not for per-
manens investment
Through the acceptance or indorse-
rnent OF the merchants note by the
bank or banker the promissory note,
from being a dead instrument and
nonliouid asset, becomes a liquid asset,
q part and parcel of the system OF
tokens OF exchange which serve as
substitute for money or as auxiliary
currency.
Acceptances are given by European
banks and bankers mainly for three
kinds of drafts-the documentary bill,
the commercial credit bill, and the
finance BILL
The documentary bill is probably The
most important Of these three II an
American merchant buys coffee in san
Paolo he will generally pay for II by
opening for the shipper documentary
credit in Europe-that is to say, the
American purchaser makes an arrange
usent with the European banker. by
which the latter agrees to accept, let US
saw. a three months bill drawn on him'
with shipping documents attached, COW
erine a certain shipment of coffee, the
amount to be drawn being the equiva-
lent of the amount due by the American
purchaser TO the South American ship
ner The shipper will have no diff
c,,ltv in selling TO bank in San Paoio
his bill drawn on frst-ciass Euro
mean banking house, and thus VIII
promptly secure the money due him fof
the goods sold. The local bank In san
Paolo will buy the bill. without hesita-
zion because it knows that il need only
Send this foreign bill to England, Ger
many, or France, as the case may De,
where. owing to the extensive discount
market in these countries, it can i'm
rnediately rediscount the bill, thus Sc
curing repayment in cash Tor the
amount invested. Indeed, If the Brazil
sau hank prefers to do so, it can at the
moment of shipment, by cabling TO
Europe. fix the discount rate at which
fhe bills will be discounted upon their
arrival In Europe
When the bill reaches Europe the
dravee puts his acceptance on 1t, and
having thus obligated himself to pay
the bill when due, the documents are In
most cases released and sent TO the
American purchaser Of the goods who
opened the credit with the European
hank OF course, the American pur-
chaser paws a commission to the Euro
mean banker for the services rendered
The compensation depends on the
standing of the purchaser and, in part,
on the question of whether or not tbe
documents are TO be released upon ac-
ceptance-the American purchaser obli-
eating himself to put the bank in
funds before the bill falls due. The
majority of all shipments of Inerchan-
disc. particularly those of raw material
are everywhere financed" in this way.
The Documentary Bill.
Next in Importance TO the document
erv bill is the two or three months
bill drawn on a bank or banker as a