Definition of private discount
A possibility of short term financing in foreign trade is the granting of an acceptance credit on a private discount basis. The private discount is a bank acceptance that is issued by a company in Germany and abroad in German currency on the basis of import, export or merchanting transactions. It can be purchased by Privatdiskont AG under various conditions.
In 1959 Privatdiskont AG was founded in Frankfurt. It was run by around 60 credit institutions. The Privatdiskont AG was managed in personal union with the Export Credit Society mbH (AKA).
The functionality of the private discount market was primarily ensured by the Bundesbank's willingness to buy private discounts at any time in order to contribute to the promotion of German foreign trade.
EC internal market
Due to harmonization efforts and with regard to the EC internal market, this funding measure was initially restricted. Privatdiskont AG has been without active business activity since the Bundesbank's rediscount line was completely discontinued.
The economic importance of private discount financing is particularly evident in:
- The cheap short-term refinancing option.
- The possibility of subsequently refinancing cash transactions that have already been carried out by separating trading and lending business.
- The quick buying and selling option depending on the liquidity situation
- The private discount rate depends on supply and demand. However, it is usually below the discount rate of the Bundesbank.