Redesconto

Redesconto, or redesconto, is a monetary policy instrument used by central banks to provide liquidity to the banking system through rediscounting eligible credit instruments held by financial institutions. By rediscounting assets, banks can convert earned receivables into cash, helping to smooth funding costs and support lending during periods of tighter liquidity. The operation typically functions as a loan from the central bank to a commercial bank, backed by the bank’s own discounted assets, which the central bank discounts at a prescribed rate.

In practice, a banking institution presents to the central bank certain credit instruments that are eligible for redesconto, such as bills of exchange, promissory notes, or other qualifying receivables. If approved, the central bank purchases (rediscounts) these assets and provides funds to the bank at a discount rate and with a specified maturity. The bank repays the central bank at maturity, usually with interest. The amount of rediscounting and the terms are determined by the central bank as part of its monetary policy and liquidity management.

Scope and eligibility for redesconto vary by country and over time. The set of eligible assets and the conditions for rediscounting are defined by regulation and can include short- to medium-term commercial, export, or agricultural credit instruments. This facility is often viewed as a complement to open market operations and other liquidity tools rather than a routine funding source.

Historically, redesconto has been a common instrument in many economies, especially before modern frameworks emphasized market-based operations. In contemporary practice, its prominence varies; some central banks maintain rediscount facilities as emergency liquidity lines or during periods of reform, while others have reduced or phased them out in favor of other tools. In Portuguese-speaking contexts, particularly Brazil, redesconto has played a notable historical role in the central bank’s liquidity management.