What Is a Bank Bill?

Sometimes referred to as a bank note, a bank bill is a term that may be used to describe any type of paper currency issued by a national government entity that is authorized to produce legal tender in that country. The term can also refer to a type of investment that is structured with a short-term maturity and can be purchased at a discounted rate. Popularly known as greenbacks, sawbucks, and a number of other colorful names in various nations, a bank bill in any form is a negotiable instrument that has a stated value and may be purchased, sold, or traded for goods and services at any time.

As the term relates to currency, a bank bill is any paper currency that is recognized as legal tender. Bills of this type may be used freely in the purchase of goods and services, as long as the seller recognizes the currency as legal and acceptable. While a bank bill is normally used only in the country of origin, it is not unusual for travelers to present the bills to an authorized dealer who can exchange those bills for legal tender in the country where the traveler is visiting, using the current rate of exchange that exists between the two currencies.

A bank bill may also be a type of investment instrument. When this is the case, the bill is usually in the form of a security that will mature in no more that 180 days from the date of purchase. Once the bank bill matures, the owner will be able to recoup the original investment, plus an additional return. This type of bill may be sold at a discount on the front end, allowing the holder to collect the face value of the instrument at the time of maturity, or be sold with a fixed or variable interest rate associated with the investment, allowing the holder to collect the original investment in the bank bill plus any interest that accrues between the purchase date and the maturity date.

Another variant of the bank bill is commonly referred to as a bill of exchange. In this scenario, the instrument is typically sold at a discounted rate that is less than the actual face value. The agreement between the issuer and the buyer is that at a specific future time, the bill can be presented for payment and receive the full face value identified on the document. This particular approach is very straightforward and does not require calculating interest, since both the issuer and the buyer know up front exactly how much of a return above and beyond the purchase price will eventually be due the buyer.