EXCHEQUER BILLS. The exchequer bill was the credit instrument in which the principal part of the floating debt of the British Government used to be embodied, till its place was taken by the modern treasury bill in 1877.
The exchequer bill was an obligation of the exchequer issued by direction of the Treasury. It was a negotiable instrument transferable by endorsement. It was sometimes for three months, sometimes for one year, sometimes for several years. Its special characteristics were (I) that the holder could use it during its currency (or during a specified part of its currency) in payment of taxes or other sums due to the exchequer, (2) that interest accrued on it from day to day at rates notified by the Treasury from time to time in the London Gazette. Sometimes holders were entitled to demand cash for the bills ; for example, the holder of a five-year bill might have the option of demanding payment in cash at intervals of 12 months. The original exchequer bills of 1 696 were payable at any time on demand, like bank notes.
The right to hand in bills in payment of taxes was in practice equivalent to a right to demand payment in cash. In order to pre vent bills from being presented to an inconvenient extent, the Treasury relied on its power over the rate of interest. If the bills were quoted in the market at a discount, that meant that it was profitable to the holders to present them (or to sell them to tax payers to be presented). The Treasury would then raise the rate of interest high enough to induce holders to keep them.
Exchequer bills were first issued in 1696, when Charles Mon tagu was chancellor of the exchequer. In the course of the i 8th and 19th centuries they came to be issued under various author ities : (I) Supply bills were authorized as part of the permanent national debt, and were regularly renewed as they fell due. (2) Deficiency bills were issued whenever money was needed to make up the charge on the consolidated fund at the end of a quarter (including the interest on the funded debt) , and had to be re paid in the ensuing quarter. (3) Bills were issued in anticipation of certain taxes (especially the malt and sugar duties and land tax). (4) From 1829 onwards the practice was adopted of author izing temporary borrowing on exchequer bills in the Consoli dated Fund Acts and the Annual Appropriation Act. These were known as ways and means bills, and took the place of the bills in anticipation of taxes, which were not resorted to after 1831. (5) Exchequer bills were issued to raise money to be lent from the exchequer to local authorities and others for the construction of public works. This system has been replaced by the local loans fund, financed by issues of local loans stock. See NATIONAL DEBT.