The procedure of financing exports through the medium of Dollar Acceptances differs somewhat from that of financing imports.

Assume that a foreign buyer has bought goods in the United States. The American exporter who has sold the goods, demands a bank credit against which he can draw when shipment has been effected. The buyer abroad accordingly arranges with his local bank for the credit, and the foreign bank, in turn, requests its New York bank correspondent to open a credit in favor of the American shipper, available by the latter's ninety days' sight drafts on the New York bank, such drafts to be accompanied by certain shipping documents which are specified.

The American shipper, after having effected shipment and secured the bill of lading and other documents required, draws his draft and presents the latter to the New York bank for acceptance, together with the required shipping papers. The New York bank "accepts" the draft, to fall due in ninety days, and returns the accepted draft to the shipper, forwarding the shipping documents by first mail to the foreign bank.

The foreign bank turns these documents over to its client, the buyer of the goods, against such security as it may see fit. Funds to meet the acceptance on the due date are guaranteed and furnished by the foreign bank to the New York bank.

In the mean time, the American shipper, who now holds a "Bank Acceptance," in payment of his shipment, either discounts that acceptance with his own bank, or sells it in the open market at what is called "the ruling rate for member bank acceptances," thus receiving his money.

The advantages of the Dollar Acceptance in this case are obvious. The foreign buyer wants ninety days' time at the lowest cost; this the American seller gives him. Knowing that he can sell the acceptance which he receives from the New York bank at the lowest possible rate, the seller adds only a small percentage to his selling price to cover this discount. The American seller is thus enabled to quote lower prices now than at any time before the passage of the Federal Reserve Act, when he was compelled to draw on some foreign bank, which procedure compelled him to add to his price a good margin to protect himself against loss in the exchange, a higher discount, and the cost of the bill stamps.

It may be said here that the American exporter who demands a bank credit to cover his sale, is still too insistent upon receiving a "sight" credit, under which he receives "cash against documents." If we are to remove a positive restriction from our export trade, it is imperative that our exporters consent to the drawing of "long" drafts on American banks which open credits, if so requested by the foreign buyers. The latter want time in which to make a "turnover," and this can easily be granted by the American sellers at low cost and little or no risk. The excuse of some business houses that they do not care to be contingently liable as drawers of these acceptances is irrelevant, since such contingent liability is unimportant in view of the fact that the acceptors of these drafts are strong banks which have become still stronger on account of membership in the Federal Reserve System.

Not all exports are covered by "Bank Credits," - in fact, the majority are not. Notwithstanding, Bank Acceptances have been successfully employed in the financing of our export trade, particularly exports to South and Central America, the banks paying with their credit by giving their "acceptance" instead of paying with funds when purchasing documentary drafts on those countries.

Bank Acceptances may be employed in anticipation of actual exports. For instance, a merchant has a large order for an export shipment. He may, after having made proper arrangements with his bank, draw long term drafts on the latter, and use the funds thus created for the purchase or preparation of the shipment. After the shipment has been made, the draft on the foreign purchaser or the foreign purchaser's bank, together with the relative shipping documents, may be handed in to the bank for discount or collection, the bank in turn using the proceeds of this draft in liquidation of the original acceptance.

This method has been successfully used since the outbreak of the war, and due credit should be given to the Federal Reserve Board for its intelligent and practical interpretation of the law.