Problems and features of bill circulation

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Promissory notes take far from the last place on the securities market. Their appeal is developing both globally and on the territory of the Russian Federation. But how successful? What are the difficulties in the way of this development? What are the features of bill circulation in Russia? What prospects do analysts determine for him? The article will be devoted to the answers to these questions.

Definition of concept

Promissory note is one of the most frequent categories of securities in the Russian practice of stock markets. But what is it? The answer is contained in the RF Law "On the Securities Market" (1996):

• Emission security - any security (including non-documentary group), which simultaneously establishes a list of property and non-property rights that are subject to certification, possible assignment and unconditional exercise (subject to the provisions of the above-mentioned Federal Law), are placed in issues, and also have equal volumes and terms for the exercise of powers within one such issue - withouttaking into account the time of acquisition of the security.
• A security is a specific monetary document certifying the property rights or loan relations of the owner of the paper in relation to the person who issued it.

A promissory note is an unconditional written debt obligation drawn up according to the form approved by law. According to it, one party (the drawer) is obliged to unconditionally pay the monetary amount indicated in this paper. It is received by the holder of the bill (the owner of the bill) upon the due date of the payment to his address or at his own request.

Thus, the bill gives its owner the right to demand from the credited (or the acceptor - a third party who has assumed the obligation to pay on the bill) the payment of the amount of money indicated in the document upon the occurrence of a certain condition.

The peculiarity of bill circulation is that this document is a complex settlement and credit instrument. It can simultaneously act as a security, means of payment and credit money. In addition, in the role of a security in itself acts as an object of various transactions.

Promissory notes and bill circulation in the Russian Federation are regulated as follows:

• Fundamentals of civil law.
• FZ "On promissory notes and bills of exchange" (1997).

Main document features

To understand the rules of bill circulation, you need to decide on the main features of this security:

• Characterobligations, which is expressed by a bill, - abstract. The text of this document does not contain a reference to the transaction, which is the basis for its issuance.
• If the bill is genuine, then the nature of the obligation under it is indisputable.
• The nature of the obligation for this security is unconditional. The bill contains a simple and unconditional offer to provide a certain amount of money. Hence any attempt to negotiate payment is null and void.
• A bill is always a monetary obligation. They will never have an obligation where the payment of a debt means the provision of a product or the provision of a service.
• A bill of exchange is strictly a written document. Oral issuance of such obligations is not possible.
• A bill of exchange is a document that has strictly established, mandatory details.

We will analyze the latter in more detail.

Required details

In the article we analyze the basics of bill circulation, types of bills, bill details. As for the latter, according to the International Convention, there are 8 mandatory details for this security:

• Promissory note. That is, the document must necessarily indicate "Promissory note". Not only in the title, but also in its textual content.
• The currency in which the debt will be paid.
• Payment amount. In the bill, it is indicated at least twice - in numbers and in words.
• Information about the payer for this document.
• Information about the person in whose favorpayment will be made.
• The place where the debt will be repaid.
• The period after which the payer is obliged to repay his debt.
• Time and place of issue of the bill.
• The document is certified by the handwritten signature of the person who issued this bill.

It must be said that the parties obligated by the bill are jointly and severally liable. And in case of default by the debtor (drawer), the payee may apply for recovery to any of the former holders. Those, in turn, when paying off the bill, acquire the right to demand bill amounts from persons who are in the bill chain.

Varieties of bills

The circulation of bills in Western Europe of modern times developed so productively that it became necessary to introduce several classifications of these securities due to their difference. Consider the most common:

• Promissory notes (or solo bills) and bills of exchange (drafts). They differ from each other in the number of participants in the transaction.
• Commercial (commodity), treasury and financial. They differ from each other in the nature of the transaction, which underlies the bill.
• Bronze, oncoming and friendly. Separation according to the degree of security of the bill. A simpler classification is the division into secured and unsecured.
• Order (with circulation by endorsement) and bearer. Accordingly, they differ in the method of transmission.

Let's look at some of the categories in more detail.

Commodity group

The obligations of this bill of exchange are based on a commercial loan, commodity transactions. The credit in this case is provided by the seller to the buyer in case of sale of products.

With such bill circulation, commercial credit can, on the one hand, act as an instrument of this security. On the other hand - to perform the tasks of the settlement tool. After all, in the future it repeatedly passes from hand to hand, serves as a monetary substitute for multiple acts of purchase and sale of products.

Financial and Treasury Groups

A monetary obligation under a financial bill must be based on some kind of monetary transaction that cannot be associated with the sale and purchase of goods.

It is important to note that the varieties of such bills are "commercial paper" - circulating promissory notes in the name of the issuer. Their characteristics:

• No collateral.
• They are discounted.
• Bringing a certain percentage to the face value.
• Issued for a period of 1 to 270 days.
• Security form - "to bearer".

As for Treasury bills, they are inherently short-term securities. Their issuer is the state.

Friend group

Bill circulation in the Republic of Kazakhstan, the Russian Federation, the Republic of Belarus is somewhat similar, which is not surprising - these are the "descendants" of one state, which is why the prerequisites for the development of their stock markets are related.

As in these countries, and throughoutaround the world, so-called friendly bills are common. What's this? Securities behind which there are neither actually concluded transactions, nor real financial obligations. Only persons acting as participants on the promissory note are real.

According to common practice, friendly bills are usually exchanged by two persons who are already in a trusting relationship with each other. To account for a bill by the bank, in order to pledge this security in order to receive real money for it. Sometimes friendly bills are also used to make payments.

Bronze Group

By examining the varieties of these securities, we see the economic tasks solved in bill circulation.

Behind the "bronze note" category is neither a real deal nor a real financial obligation. And an important point: at least one person involved in such a deal is fictitious.

The objectives of the Bronze Note are as follows:

• Obtaining collateral for this paper in banks.
• Using this essentially false documentation to pay off debts.
• Use to work with your financial obligations, to participate in real transactions.

Simple group

Bill circulation in the Republic of Belarus, RF cannot be presented without the category of promissory notes. There are two parties involved. The payer, respectively, is the drawer. By issuing this paper, he undertakes to pay his creditor (the bill holder in this vein) a specific amount at a specific time and in a specific place.

Transfer group

If we turn to the peculiarities of accounting for bill circulation in banks, then the transfer category is the most difficult. After all, there are at least three people involved. The drawer here is the drawer. And he is not a bill payer. The payer is a third party who assumes responsibility to fulfill the obligations under the bill on time.

Thus, a bill of exchange acts as a written offer of drawers - an appeal to a third party (payer, drawee) to pay the agreed amount to the bill holder (creditor in this case).

The classic bill of exchange is the participation of three persons. But in this category there are bills with two or even one single participant. The drawer, when issuing such a paper, may appoint himself as the recipient of the sum of money. Or another person of your choice.

Feature of bills of exchange: the obligation of the drawer here is conditional. He undertakes to pay the creditor the amount of the bill only if the drawee has not provided it. In this state of affairs, the drawer is equated to the person who issued the promissory note.

A bill of exchange is not considered as an obligation of the drawer. It is an obligation of the drawee (payer) and only after a unilateral act of will expressed by him, called acceptance.

From here comes the concept of "accepted bill of exchange" - with the consent of the payer to pay it. From the moment of acceptance, the drawee becomes a direct debtor of the bill. If ahe accepts the security, but will not pay on it, then a protest against non-payment will legally arise against him.

Basics of International Circulation

Features of accounting for bill circulation in banks, respectively, are regulated by laws and legal acts of the states of the world. But all of them are based on international bill of exchange law (we are talking about the International Geneva Convention on bills of exchange, passed on 1930-07-06).

It, I must say, allows for an extremely liberal procedure for issuing such securities. This does not require state registration of the bill, nor its protection by a special certificate, nor the preconditions for its (certificate) appearance, nor security by a pledge or pledge. The participants in the transaction are only required to have legal and legal capacity.

But the simplicity of the issuance is compensated by the strict adherence to the rules of the bill circulation of the parties to the transaction. You need to meet a number of requirements, go through certain procedures. Hence, working with bills requires experience and professionalism.

Trends in Russian circulation

The basis of bill circulation has two distinct features, if we talk specifically about the Russian Federation:

• The desire of Russian banks and companies to increase the share of their own bills in circulation.
• Search for new sectors of capital investment.

This is vividly represented by the situation in the country that unfolded in 1996. Then, according to the Central Bank of Russia, bills were issued in the amount of 20.2 trillion rubles. As a rule, in the Russian Federation they were issued mainly for settlements with creditors,excluding receivables of enterprises. But the rigid deflationary state policy of 1994-1996. coupled with such trends has led to an acute shortage of real money in the economy. Many companies and manufacturing enterprises then lost their last source of replenishment of their working capital - inflation.

On the other hand, high levels of lending rates for end borrowers have led to the fact that bills (as well as other surrogates) have become both the only possible payment methods in business and sources of working capital replenishment.

Features of domestic circulation

Therefore, the problems and peculiarities of bill circulation in Russia are primarily related to the fact that these papers in our country work according to a scheme different from the world's classical one. In most cases, they act as means of settlement with creditors. At the same time, the obligatory function of converting into money supply is ignored.

The reason for this is simple: as soon as the promissory note is "transformed" into the money supply, products from the shipped list are transferred to the sold list. Therefore, it becomes necessary to pay income tax. That is why the bill is sent from one counterparty to another. His role is to cover accounts receivable. Therefore, if he returns to the drawers, it is only to pay the debt.

From here the operators of bill markets focus on operations with bank bills, because against this background they are more reliable and liquid. And the holder of exactly bank bills can get on them"live" money. While for commercial bills, the best thing is to provide the goods.

Interest of Russian banks to bills will be explained. The decline in yields on markets such as GKO/OFZ and OGSZ forced banking organizations to turn their attention to highly liquid securities. Banks also take into account the interests of their own customers, who use bills for mutual settlements. Also, receiving income from the distribution of bills, banks are expanding the range of services provided to customers.

But there is also a negative aspect of using promissory notes by banks. Namely, their excessive release. Tveruniversalbank can be cited as an illustrative example from the past. He, in fact, was a pioneer of the bill market in the Russian Federation. But he led an extremely risky policy in this area, which put him in a very difficult financial situation in the future.

The current state of affairs in Russia

Now let's turn directly to the problems of the development of bill circulation in Russia today. In recent summers, there has been a rapid development of this branch of the stock market. There are hypertrophied forms of bill circulation. And this is due to the following factors:

• Crisis of the state budget. It forces authorities at all levels (from federal to local) to use money substitutes to cover the budget deficit. If we turn to the example of 1995-1996, we can recall how the Ministry of Finance usedtreasury bills for settlements with state-owned enterprises. The large-scale issue of these securities then caused sharp criticism from the International Monetary Fund. The practice ceased, but in 1996 the Ministry of Finance began to apply commercial bank guarantee schemes for bill loans to recipients of budget money. Bills of exchange have already become commercial banks. Many of them could not resist the temptation to overissue these securities.
• Fake bills. In the history of modern Russia, they also took place. Moreover, the Ministry of Finance also acted as a drawer or avalist. A striking example is bills issued on behalf of the federal treasuries of Dagestan and North Ossetia for a total of 7 trillion rubles. Other subjects of the federation also contributed by issuing various substitutes for money, including bills.
• Restriction of credit opportunities of banks. Many of them have reduced their lending to trading capital. Against the backdrop of a shortage of "live money", companies were forced to replace them by actively introducing commercial bills into circulation.

Currently, the Central Bank of Russia does not allow credit institutions to work in non-documentary form with promissory notes. Under the auspices of the Central Bank, AUVER was created, designed to create the necessary legal basis for the bill market, as well as to create its information transparency. Today, there is a transition of the Russian circulation of bills from the state of laissez-faire to active state regulation.

Prospects for the development of bill of exchange technologyappeals in the Russian Federation and the world are evaluated ambiguously. Someone sees the right way in further adherence to the Geneva Accords, someone - in the development of a fundamentally new regulatory act. As for the Russian Federation, the state of the bill market requires a large-scale reform of legislation in this area.