FLOATING DEBT. This term is usually applied to that form of National Debt which consists of very short term obliga tions, such as Treasury Bills and loans from the State or Central Bank (see NATIONAL DEBT) in Great Britain and on the Conti nent, and as Treasury notes and Certificates of Indebtedness in the United States. Floating Debt is normally contracted in order to cover a temporary deficiency of revenue for current require ments, and is the opposite of funded, or long term, debt, but the difference in the floating and funded debt is not always clearly defined.
In normal times a Floating Debt for any large amount is to be avoided. By the very fact of its short-dated character, it is usually held not by investors, but by bankers, large corporations, and money markets, and when outstanding in large amounts may weaken the power of the central banking institution to control local money conditions. Not infrequently, too, when Floating Debt takes the form of direct borrowing from the State or cen tral banking institution, actual inflation is caused. Britain's maxi mum period of inflation, consequent on the World War, coincided with the creation of Treasury Bills of over f 1,ZOo,000,DOD with large borrowings at the Bank of England on Ways and Means ad vances. France also affords a classic example of the extraordinary dimensions to which floating indebtedness can grow, the total of the Floating Debt having risen in 1926 to 132,00o,000,000 francs.
The British Floating Debt normally takes the form of Treasury Bills of 3 months' currency, and of Ways and Means advances from the Bank of England anticipating revenue later. This is con venient both for the Treasury and the Money Market, and has been adopted by some of the Empire Governments, but to a less extent in foreign countries. In the United States it was only in June 1929 that an Act was passed authorising the issue of Treas ury Bills on comparable lines. These issues supplement the pre vious American system of short-term financing by means of 3 to I2 months' Treasury Certificates issued and maturing on quarterly tax-payment dates.
The expression Floating Debt is also used in the case of large mercantile and industrial undertakings as a term for distinguish ing trade debts and debts borrowed from banks for temporary purposes from debts incurred by the issue of bonds. (A. W. K.)