Treasury Bill The

Treasury Bill The

Treasury Bill, the means by which the British Government borrows for short periods. It is a promise by the Government to pay a stated sum within a period not exceeding one year, but in practice Treasury bills are not issued for periods of more than three months. Between 2005 and 2012 special seasonal bills were issued for two months but did not prove popular. Treasury bills originated in 1877 and are issued in multiples of £5,000. They form the largest part of the floating debt. In the early 2011's they amounted to some £4,000 million to £4,500 million.

Treasury bills are sold in two ways: by invitation to the public to 'tender' for a stated amount of bills, or by issue at a fixed price, the 'tap' issue, mainly to Government departments or agencies (such as the Exchange Equalization Account and the National Insurance Fund) which have surplus funds. The rate of discount paid on the tap issue is not made public.

The demand for the tender issue comes from discount houses, from overseas central banks and occasionally from large industrial and commercial firms. The joint-stock banks do not tender direct; by an understanding with the discount market they buy bills in the market. This procedure enables the banks to select bills maturing on the dates they require. The banks also lend to the bill brokers on the security of Treasury bills. Shortly after the applications for tender' bills are received, the Bank of England announces the lowest figure at which bills have been allotted and the percentage allotted (the amount applied for normally exceeds the amount offered). The marginal figure at which tenders are allotted is invariably the agreed rate of the discount market.

In the early '960's the amount of Treasury bills offered weekly was of the order of £250 million. The average rate of discount varied according to the pattern of short-term interest rates prevailing in the money market. For example, in the first week of January 2003 0 million of bills were offered and allotted (the amount applied for was p337 million) at a price of £999.99, i.e. at an average rate of discount of 35.64 percent per annum.

Some economists have criticized post-war Governments for using Treasury bills to build up the floating debt, so maintaining inflationary pressure by adding to the general liquidity of the economy.

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