REFUNDING (from refund, OF., Fr., refon. dre, to restore, pay back, remodel, from Lat. re fundere, to pour back, restore. from re-, hack, again, anew + undrre, to pour). A financial operation by which a government or corporation changes the terms of an existing debt. In public finance the term is used synoncn ouslv with version. A government may refund its debts to secure better terms either with respect to rate of interest or with respect to time of payitieut of principal. Public debts are usually created at a time when public credit is low: accordingly a high rate of interest must be offered to tempt in vestors. With the restoration of credit, it be comes possible for the government to borrow money at a lower rate of interest; and if the terms of its original debt permit. it is good financial policy to pay off that debt with money borrowed at the lower rate. In practice, the holders of the old usually exchange them for the so a refunding operation changes neither the principal of the debt nor the creditors to whom it is due: although technically a new debt has taken the place of the old one.
Quite apart from improvements in public credit, the rate of interest at which a government can money tends constantly to decline, owing to the general fall in the rate of interest. :Most
modern governments are bnrdened with a more or less permanent debt: accordingly their recent history shows a series of refunding operations. resulting in a steady decline of interest on public debentures. The policy of refunding of debts, while justly popular, naturally meets with the hostility of public creditors. who have at times been powerful enough to influence the action of the government, as in France, 1878•18S3. when the government could have replaced obligations bearing interest at over six per cent. by tions bearing interest at less than four. The public obligations were largely in the hands of small holders. whose political influence deterred the ministry from undertaking the operation.
Refunding can take place advantageously only when government debentures are above par on the market. It is therefore had policy for a ment in need of funds to sell low-interest bonds below par, since such a policy prevents it from taking advantage of a fall in the rate of interest. See DEBT, PUBLIC; FINANCE: Subhead FINANCE under the articles UNITED STATES, GREAT BRITAIN, GERMANY, etc.