What is a Banknote?

Legal tender issued by a bank that serves as a promissory note for a listed amount of silver or gold coin. In modern times, most economies no longer backed by commodities such as gold or silver. Most issued banknotes are numismatic value.

Banks and governing authorities issue banknotes as promissory notes, which are to be paid to the holder. Banknotes were first provided by commercial banks, which were required by law to redeem the notes for legal tender usually gold or silver coins. These commercially issued banknotes are supposed to be traded at face value based on the financial market it is issued in. Commercial banknotes have mostly been replaced by the national banknotes issued by central banks or other financial authorities.

The concept of using banknotes as money has continued to evolve over time. Before banknotes became common, a legal tender was backed by precious metals. Historically, banknotes were used as a sort of I.O.U., a placeholder for the expected future exchange of precious metals such as silver or gold.

It was essentially a representative of money, rather than money itself. Over time, due to its convenience and relative security, and instead of carrying precious metals or gems, banknotes started to be regularly accepted as money itself. In fact, since the 1600s the practice of using banknotes was largely accepted in London. Since the removal of gold, silver, and other precious metals as legal tender, banknotes are no longer placeholders for gold and silver but are not fiat currency. Fiat currency is a banknote system created by nation-states and regulated by governments, but that has no intrinsic value.

What people ask…

How does a bank note work?
What does specimen mean on money?
What is the difference between a coin and a note?
Are pound notes legal tender?

See Also…

Representative Money, Notaphily

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