Treasury Bills

The U. S. Government operates largely on credit, the Treasury borrowing money in three ways: 1) Bonds for long-pull needs over five years; 2) Notes for one year to five; 3) Certificates for less than a year.

Last week the House of Representatives passed legislation to give the Treasury a fourth method of borrowing, to be known as Treasury "bills."

Short-term certificates are issued on the quarterly tax-payment days. The present system has these defects, as explained by Secretary Mellon: 1) Money is borrowed in advance of actual needs with a consequent loss of interest; 2) The Treasury must give the certificates, which it sells at par, as low an interest rate as possible, yet high enough to meet momentary conditions of the money market. This involves difficult guesswork.

The new Government financing legislation which the Senate has yet to approve, would permit the Treasury to sell its bills below par and pay no interest on them. The securities would be put up for competitive bidding, the buyer making his profit in the difference between the purchase price and the full redemption value.