When business went down and the requirements of trade declined, the volume of rediscounting of bills would fall, the supply of bank reserves and the amount of bank credit and money would also contract.
These short-term self-liquidating productive loans acquire three advantages.
The central bank was expected to increase or erase bank reserves by rediscounting approved loans.
When business started growing and the requirements of trade increased, banks were able to capture additional reserves by rediscounting bills with the central banks.
In simple words a loan to be successful engages a third party. Moulton who insisted that if the commercial banks continue a substantial amount of assets that can be moved to other banks for cash without any loss of material.
In this case the consumers are the third party, besides the lender and the borrower. In case of requirement, there is no need to depend on maturities.
This theory states that, for an asset to be perfectly shiftable, it must be directly transferable without any loss of capital loss when there is a need for liquidity.