The process of discount and deposit is the purchase of the promissory note of a customer,[6] the price being a credit in the form of a demand deposit on the books of the bank.
This--the central and most characteristic banking operation--has something of mystery in it at first view.

The simplest idea of making a deposit is that of bringing to a bank window bags and rolls of money or other funds (credit papers such as checks and drafts, calling for the payment of money).

The bank in that case becomes the debtor and the depositor becomes the creditor of the bank.

But in discount and deposit the depositor brings no money, and the credit paper that he gives is his own promise to pay whereby he becomes the bank's debtor.
For example, when a bank discounts a thousand dollar note for three months and credits its customer with the proceeds, its deposits are at that moment increased (let us say) $985.

Notice that hereby the bank does not add a cent to the cash in its vaults while it has added to its liabilities payable on demand.