Banknote

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A banknote (often known as a bill, paper money or simply a note) is a kind of negotiable instrument,

a promissory note made by a bank payable to the bearer on demand, used asmoney, and in many
jurisdictions is legal tender. Along with coins, banknotes make up the cash or bearer forms of all
modern money. With the exception of non-circulating high-value or precious metal commemorative
issues, coins are used for lower valued monetary units, while banknotes are used for higher values.
However some coins may have a significant value depending on the condition and worth.

US twenty-dollar bill

Contents
 [hide]

1 Advantages

2 History

o 2.1 First banknotes in the world

o 2.2 Banknotes in Europe

o 2.3 Banknotes in the United States

3 Issue of banknotes

4 Materials used for banknotes

o 4.1 Paper banknotes

o 4.2 Durable banknote papers

o 4.3 Counterfeiting and security measures on paper

banknotes
 o 4.4 Polymer banknotes

o 4.5 Other materials

5 Vending machines and banknotes

6 Destruction

7 Literary references

8 Paper money collecting as a hobby

o 8.1 Catalogs

o 8.2 Trades

9 See also

10 References

11 External links

[edit]Advantages

Originally, precious and semi-precious metals were made into coins and were used to negotiate and
settle trades. Banknotes offer an alternative bearer form of money, but the advantages and
disadvantages between the two forms of bearer money are complex and so in different circumstances the
overall advantage can lie with either form.

The costs of using bearer money include:

1. Manufacturing or issue costs. Coins are produced by industrial manufacturing methods that
process the precious or semi-precious metals, and require additions of alloy for hardness and
wear resistance. By contrast bank notes are printed paper (or polymer), and typically have a
lower cost of issue, especially in larger denominations, compared to coin of the same value.
2. Wear costs. Coins wear and lose mass over their economic life, and eventually are scrapped.
Banknotes do not lose economic value by wear, since, even if they are in poor condition, they are
still a legally valid claim on the issuing bank. However, banks of issue do have to pay the cost of
replacing banknotes in poor condition and paper notes wear out much faster than coins.
3. Opportunity cost of capital. Coins have economic value and are a form of non-financial capital,
however they do not pay interest. Banknotes have economic value but are a form of financial
capital, a loan to the issuing bank. The issuing bank invests its assets primarily in interest
bearing loans and securities, but also needs to hold metallic reserves. Thus banknotes indirectly
earn interest through the investments made by the issuing bank, but coins do not pay interest to
anyone. This foregone interest is the most important economic advantage of banknotes over
coins.
 4. Cost of transport. Coins can be expensive to transport for high value transactions, but banknotes
can be issued in large denominations that are lighter than the equivalent value in coins.
5. Cost of acceptance. Coins can be checked for authenticity by weighing and other forms of
examination and testing. These costs can be significant, but good quality coin design and
manufacturing can help reduce these costs. Banknotes also have an acceptance cost, the costs
of checking the banknote's security features and confirming acceptability of the issuing bank.
6. Security. Counterfeiting paper notes is easier than forging coins, especially true given the
proliferation of color photocopiers and computer image scanners. Numerous banks and nations
have incorporated many types of countermeasures in order to keep the money secure.

The different advantages and disadvantages between coins and banknotes imply that there may be an
ongoing role for both forms of bearer money, each being used where its advantages outweigh its
disadvantages.

[edit]History

Paper money originated in two forms: drafts, which are receipts for value held on account, and "bills",
which were issued with a promise to convert at a later date.

Money is based on the coming to pre-eminence of some commodity as payment. The oldest monetary
basis was for agricultural capital: cattle and grain. In Ancient Mesopotamia, drafts were issued against
stored grain as a unit of account. A "drachma" was a weight of grain. Japan's feudal system was based
on rice per year – koku.

At the same time, legal codes enforced the payment for injury in a standardized form, usually in precious
metals. The development of money then comes from the role of agricultural capital and precious metals
having a privileged place in the economy.

Such drafts were used for giro systems of banking as early as Ptolemaic Egypt in the first century BC.

The perception of banknotes as money has evolved over time. Originally, money was based on precious
metals. Banknotes were seen as essentially an I.O.U. or promissory note: a promise to pay someone in
precious metal on presentation (see representative money). With the gradual removal of precious metals
from the monetary system, banknotes evolved to represent credit money, or (if backed by the credit of a
government) also fiat money.

Notes or bills were often referred to in 18th century novels and were often a key part of the plot such as a
"note drawn by Lord X for £100 which becomes due in 3 months time"
Song Dynasty Jiaozi, the world's earliest paper money

[edit]First banknotes in the world

The use of paper money as a circulating medium is intimately related to shortages of metal for coins.
In ancient China coins were circular with a rectangular hole in the middle. Several coins could be strung
together on a rope. Merchants in China, if they became rich enough, found that their strings of coins were
too heavy to carry around easily. To solve this problem, coins were often left with a trustworthy person,
and the merchant was given a slip of paper recording how much money he had with that person. If he
showed the paper to that person he could regain his money. Eventually, the paper money called "jiaozi"
originated from these promissory notes.

In the 600s there were local issues of paper currency in China and by 960 the Song Dynasty, short of
copper for striking coins, issued the first generally circulating notes. A note is a promise to redeem later
for some other object of value, usually specie. The issue of credit notes is often for a limited duration, and
at some discount to the promised amount later. The jiaozi nevertheless did not replace coins during the
Song Dynasty; paper money was used alongside the coins.

The successive Yuan Dynasty was the first dynasty in China to use paper currency as the predominant
circulating medium. The founder of the Yuan Dynasty, Kublai Khan, issued paper money known
as Chao in his reign. The original notes during the Yuan Dynasty were restricted in area and duration as
in the Song Dynasty, but in the later course of the dynasty, facing massive shortages of specie to fund
their ruling in China, began printing paper money without restrictions on duration. By 1455, in an effort to
rein in economic expansion and end hyperinflation, the new Ming Dynasty ended paper money, and
closed much of Chinese trade.

In the Indian sub-continent a similar system evolved called the hundi system. The history of these
instruments has not been widely studied but it is quite likely that these were in common use hundreds of
years ago, being designed to assist in Indian trade, which was extensively practiced across the world in
the past. A Hundi is basically an unconditional order in writing made by a person directing another to pay
a certain sum of money to a person named in the order. Hundis, similar to paper notes, were issued by
indigenous bankers and used in trade and credit transactions and to transfer funds from one place to
another, a kind of travellers cheque. They were also used as credit instruments for borrowing and as bills
of exchange for trade transactions.

[edit]Banknotes in Europe
In Europe the first paper money consisted of paper 'coins' issued in Protestant Leyden (today, Leiden) in
the Netherlands during the Spanish siege of 1574.[citation needed] Over 5000 of the estimated 14,000 residents
of Leyden died, mostly due to starvation.[citation needed] Even leather (often used to create emergency
currency) was boiled and used to feed the people. So to create currency, the residents took covers and
paper from hymnals and church missals and created paper planchets, which were struck using the same
dyes that were previously used to mint coins.[citation needed]

The first proper European banknotes were issued by Stockholms Banco, a predecessor of the Bank of
Sweden, in 1660, although the bank ran out of coins to redeem its notes in 1664 and ceased operating in
that year.

Until Louis XIV, banknotes were issued by small creditors, had limited circulation, and were not backed by
the authority of the state. Economist John Law helped establish banknotes as formal currency, backed by
capital consisting of French government bills and government accepted notes.

[edit]Banknotes in the United States

Banknotes can be kept in a wallet.

In the early 1690s, the Massachusetts Bay Colony was the first of the Thirteen Colonies to issue
permanently circulating banknotes. The use of fixed denominations and printed banknotes came into use
in the 18th century.

In the early 1700s each of the thirteen colonies issued their own banknotes, called colonial scrip. Later,
the Continental Congress issuedcontinental currency to support the Revolutionary War. The federal
government of the United States did not print banknotes until 1862. However, almost immediately after
adoption of the United States Constitution in 1789, the United States Congress chartered the First Bank
of the United States and authorized it to issue banknotes. The bank served as quasi-central bank of
the United States. The bank closed in 1811 when Congress failed to renew its charter. In 1816, Congress
chartered the Second Bank of the United States. When its charter expired in 1836, the bank continued to
operate under a charter granted by the Commonwealth of Pennsylvania until 1841.

In the United States, public acceptance of banknotes in replacement of precious metals was hastened in
part by Executive Order 6102 in 1933. This order carried the threat of a maximum $10,000 fine and a
maximum of ten years in prison for anyone who kept more than $100 of gold in preference to banknotes.

[edit]Issue of banknotes
Generally, a central bank or treasury is solely responsible within a state or currency union for the issue of
banknotes. However, this is not always the case, and historically the paper currency of countries was
often handled entirely by private banks. Thus, many different banks or institutions may have issued
banknotes in a given country. In the United States, commercial banks were authorized to issue banknotes
from 1863 to 1935. In the last of these series, the issuing bank would stamp its name and promise to pay,
along with the signatures of its president and cashier on a preprinted note. By this time, the notes were
standardized in appearance and not too different from the Federal Reserve Notes that circulated for most
of the 20th century.

In a small number of countries, private banknote issue continues to this day. For example, by virtue of the
complex constitutional setup in the United Kingdom, certain commercial banks in two of the union's
four constituent countries (Scotland and Northern Ireland) continue to print their own banknotes for
domestic circulation, even though they are not fiat money or declared in law as legal tender anywhere.
The UK's central bank, the Bank of England, prints notes which are legal tender in England and Wales;
these notes are also usable as money (but not legal tender) in the rest of the UK (see Banknotes of the
pound sterling).

In Hong Kong, three commercial banks are licenced to issue Hong Kong dollar notes.[1] As well as
commercial issuers, other organizations may have note-issuing powers; for example, until 2002
the Singapore dollar was issued by the Board of Commissioners of Currency Singapore, a government
agency which was later taken over by the Monetary Authority of Singapore.[1]

[edit]Materials used for banknotes

[edit]Paper banknotes
Most banknotes are made from cotton paper (see also paper) with a weight of 80 to 90 grams per square
meter. The cotton is sometimes mixed with linen, abaca, or other textile fibres. Generally, the paper used
is different from ordinary paper: it is much more resilient, resists wear and tear (the average life of a
banknote is two years)[2], and also does not contain the usual agents that make ordinary paper glow
slightly under ultraviolet light.

Early Chinese banknotes were printed on paper made of mulberry bark and this fibre is used in Japanese
banknote paper today.

Unlike most printing and writing paper, banknote paper is infused with polyvinyl alcohol or gelatin to give it
extra strength.

Most banknotes are made using the mould made process in which a watermark and thread is
incorporated during the paper forming process.

The thread is a simple looking security component found in most banknotes. It is however often rather
complex in construction comprising fluorescent, magnetic, metallic and micro print elements. By
combining it with watermarking technology the thread can be made to surface periodically on one side
only. This is known as windowed thread and further increases the counterfeit resistance of the banknote
paper. This process was invented by Portals, part of the De La Rue group in the UK.

Other related methods include watermarking to reduce the number of corner folds by strengthening this
part of the note, coatings to reduce the accumulation of dirt on the note, and plastic windows in the paper
that make it very hard to copy.

[edit]Durable banknote papers

Banknote paper with enhanced durability is a recent development, designed to meet the growing need for
popular low-denomination banknotes to withstand extreme wear.

Improved protection against dirt: Manufacturers of banknote paper were quick to recognize the
problems associated with dirt and developed a special paper with a thin layer of varnish on the surface to
repel soiling. This layer is applied directly to the substrate. The thickness and structure of the paper
remain unchanged, thereby preserving the natural feel. The so-calledDurable Banknote Papers, which
are available in the global banknote market under brand names, such as LongLife, Platinum, Marathon
Coated, Diamone, and Flesure, protect banknotes from soiling and environmental influences, making it
possible for them to remain in circulation for longer.

Increased mechanical stability: With new products, such as Synthec and Diamone Composite,

banknote manufacturers have gone a step further and responded to the growing demand for higher
mechanical stability of the paper—because the longer a banknote stays in circulation, the limper it
becomes and the more easily it tears. Synthec substrate, for example, consists of 80 percent cotton fiber
and 20 percent synthetic fiber, with the latter being longer and more flexible than the former. The
synthetic fibers constitute a dense network within the cotton fiber structure, supporting the banknote like a
kind of corset and increasing its mechanical stability. This practically doubles the useful life of the
product. Synthec is much less sensitive to climate fluctuations than standard banknote paper. The
synthetic fibers are incorporated in the banknote substrate at the sheet formation stage. This has the
advantage that all established security features—such as three dimensional watermarks, fluorescent
fibers, security threads, or the innovative new varifeye see-through window—can be integrated into the
new Synthec substrate, just as they would be with the standard cotton substrate. Optically variable effect
inks and foil elements, such as holograms, can be applied to this substrate in the same way as with
traditional banknote paper. Public confidence in the established security features, built up over decades,
remains intact. To ensure that the banknotes are also protected against dirt, they are given a standard
coating of varnish. By the end of 2007, Synthec banknotes will be circulating in three countries, including
an African country with different climate zones that has chosen Synthec as a substrate for its lowest-
denomination note. In the south of the country conditions are tropical, with a rainy season that lasts for
eight months, while the north is very arid and extremely hot, with temperatures reaching 41 degrees
Celsius. Today, most bank notes are made from cotton to prevent easy rips.

[edit]Counterfeiting and security measures on paper banknotes

The ease with which paper money can be created, by both legitimate authorities and counterfeiters, has
led both to a temptation in times of crisis such as war or revolution to produce paper money which was
not supported by precious metal or other goods, thus leading to hyperinflation and a loss of faith in the
value of paper money, e.g. the Continental Currencyproduced by the Continental Congress during
the American Revolution, the Assignats produced during the French Revolution, the paper currency
produced by the Confederate States of America and the Individual States of the Confederate States of
America, the financing of World War I by the Central Powers (by 1922 1 gold Austro-Hungarian krone of
1914 was worth 14,400 paper Kronen), the devaluation of the Yugoslav Dinar in the 1990s, etc.
Banknotes may also be overprinted to reflect political changes that occur faster than new currency can be
printed.
In 1988, Austria produced the 5000 Schilling banknote (Mozart), which is the first foil application
(Kinegram) to a paper banknote in the history of banknote printing. The application of optical features is
now in common use throughout the world.

Many countries' banknotes now have embedded holograms.

[edit]Polymer banknotes
Main article:  Polymer banknote

In 1983, Costa Rica and Haiti issued the first Tyvek and the Isle of Man issued the first Bradvek polymer

(or plastic) banknotes; these were printed by the American Banknote Company and developed
by DuPont. In 1988, after significant research and development by the Commonwealth Scientific and
Industrial Research Organisation (CSIRO) and the Reserve Bank of Australia, Australia produced the
first polymer banknote made from biaxially-oriented polypropylene (plastic), and in 1996 became the first
country to have a full set of circulating polymer banknotes of all denominations. Since then, other
countries to adopt circulating polymer banknotes
include Bangladesh, Brazil, Brunei, Chile, Indonesia, Israel, Malaysia, Mexico, Nepal,New
Zealand, Papua New Guinea, Romania, Singapore, the Solomon Islands, Sri
Lanka, Thailand, Vietnam, Samoa and Zambia, with other countries issuing commemorative polymer
notes, including China, Kuwait, the Northern Bank of Northern Ireland, Taiwan and Hong Kong. Other
countries indicating plans to issue polymer banknotes include Nigeria and Canada. In
2005, Bulgaria issued the world's first hybrid paper-polymer banknote.

Polymer banknotes were developed to improve durability and prevent counterfeiting through incorporated

security features, such as optically variable devices that are extremely difficult to reproduce.

Apart from Australia, other countries such as Vietnam, Brunei, New Zealand, Papua New Guinea and
Romania have all their circulating banknotes on polymer.

[edit]Other materials
Over the years, a number of materials other than paper have been used to print banknotes. This includes
various textiles, including silk, and materials such as leather.

Silk and other fibers have been commonly used in the manufacture of various banknote papers, intended
to provide both additional durability and security. Crane and Company patented banknote paper with
embedded silk threads in 1844 and has supplied paper to the United States Treasury since 1879.
Banknotes printed on pure silk "paper" include "emergency money" (Notgeld) issues from a number of
German towns in 1923 during a period of fiscal crisis and hyperinflation. Most
notoriously, Bielefeld produced a number of silk, leather, velvet, linen and wood issues, and although
these issues were produced primarily for collectors, rather than for circulation, they are in demand by
collectors. Banknotes printed on cloth include a number of Communist Revolutionary issues in China from
areas such as Xinjiang, or Sinkiang, in the United Islamic Republic of East Turkestan in 1933. Emergency
money was also printed in 1902 on khaki shirt fabric during the Boer War.

Leather banknotes (or coins) were issued in a number of sieges, as well as in other times of emergency.
During the Russian administration of Alaska, banknotes were printed on sealskin. A number of 19th
century issues are known in Germanic and Baltic states, including the towns of Dorpat, Pernau, Reval,
Werro and Woisek. In addition to the Bielefeld issues, other German leather Notgeld from 1923 is known
from Borna, Osterwieck, Paderborn and Pößneck.

Other issues from 1923 were printed on wood, which was also used in Canada in 1763-1764
during Pontiac's Rebellion, and by the Hudson's Bay Company. In 1848, in Bohemia, wooden
checkerboard pieces were used as money.

Even playing cards were used for currency in France in the early 19th Century, and in French Canada
from 1685 until 1757, in the Isle of Man in the beginning of the 19th Century, and again in Germany
after World War I.

[edit]Vending machines and banknotes

People are not the only economic actors who are required to accept banknotes. In the late twentieth
century machines were designed to recognize banknotes of the smaller values long after they were
designed to recognize coins distinct from slugs. This capability has become inescapable in economies
where inflation has not been followed by introduction of progressively larger coin denominations (such as
the United States, where several attempts to introduce dollar coins in general circulation have largely
failed). The existing infrastructure of such machines presents one of the difficulties in changing the design
of these banknotes to make them less counterfeitable, that is, by adding additional features so easily
discernible by people that they would immediately reject banknotes of inferior quality, for every machine in
the country would have to be updated.

[edit]Destruction

Banknotes have a limited lifetime, after which they are collected for destruction, usually recycling or
shredding. A banknote is removed from the money supply by banks or other financial institutions due to
everyday wear and tear from its handling. Banknote bundles are passed through a sorting machine that
determines whether a particular note needs to be shredded, or are removed from the supply chain by a
human inspector if they are deemed unfit for continued use – for example, if they are mutilated or torn.
Counterfeit banknotes are destroyed unless they are needed for evidentiary or forensic purposes.

Contaminated banknotes are also decommissioned. A Canadian government report indicates:

 Types of contaminants include: notes found on a corpse, stagnant water, contaminated by human or
“ animal body fluids such as urine, feces, vomit, infectious blood, fine hazardous powders from
detonated explosives, dye pack and/or drugs...[3] ”
These are removed from circulation primarily to prevent the spread of diseases.

When taken out of circulation, Australian bank notes are melted down and mixed together to form plastic
garbage bins.

File:Banknotes.jpg
Banknotes from all around the world donated by visitors to the British Museum, London.

[edit]Literary references
Paper money is created by the devil in the 1832 Faust, Part II, Act I, by Johann Wolfgang von Goethe, to
save the imperial finances. In The Master and Margarita, by Mikhail Bulgakov,[4] the devil turns paper into
money, which then reverts into paper. In both cases, the implication is that fiat money is black magic, and
but paper.

[edit]Paper money collecting as a hobby

Banknote collecting, or Notaphily, is a rapidly growing area of numismatics. Although generally not as
widespread as coin and stamp collecting[citation needed], the hobby is increasingly expanding. Prior to the
1990s, currency collecting was a relatively small adjunct to coin collecting, but the practice of currency
auctions, combined with larger public awareness of paper money have caused a boom in interest and
values of rare banknotes[citation needed].

[edit]Catalogs

Collectors often use a banknote catalog to find information about their banknotes or banknotes they may
be interested in.

[edit]Trades

For years, the mode of collecting banknotes was through a handful of mail order dealers who issued price
lists and catalogs. In the early 1990s, it became more common for rare notes to be sold at various coin
and currency shows via auction. The illustrated catalogs and "event nature" of the auction practice
seemed to fuel a sharp rise in overall awareness of paper money in the numismatic community. Entire
advanced collections are often sold at one time, and to this day single auctions can generate well in
excess of $1 million in gross sales[citation needed]. Today, eBay has surpassed auctions in terms of highest
volume of sales of banknotes. However, as of 2005, rare banknotes still sell for much less than
comparable rare coins. There is wide consensus[citation needed] in the paper money collecting arena that this
disparity is diminishing as paper money prices continue to rise.
There are many different organizations and societies around the world for the hobby, including the
International Bank Note Society (IBNS).

[edit]See also
Numismatics portal

 Banking
 Banknote counter
 Colnect
 Contaminated currency
 Counterfeiting
 Federal Reserve Note
 Hell bank note
 List of motifs on banknotes
 Polymer banknotes
 Postal currency
 Seigniorage
 Trevett v. Weeden
 United States Note
 Used notes
 Giesecke & Devrient
[edit]References

1. ^ a b Bank for International Settlements. "The Role of Central Bank Money in Payment Systems" (PDF). pp. 96, and

see also page 9: "The coexistence of central and commercial bank monies: multiple issuers, one currency".

Retrieved 2008-08-14. "Although historically not the case, these days banknotes are usually issued only by the

central bank. This is broadly the case in all CPSS economies, except Hong Kong SAR, where banknotes are

issued by three commercial banks. Singapore and the United Kingdom are more limited exceptions. Singapore

dollar banknotes have been issued by the Board of Currency Commissioners, a government agency, although

following the merger of the Board into the MAS in October 2002 this is no longer the case. In the United Kingdom,

Scottish banks retain the right to issue banknotes alongside those of the Bank of England and three banks

currently still do so."

2. ^ "DeLaRue - The Banknote Lifecycle – from Design to Destruction"

3. ^ Trichur, Rita (2007-09-28). "Bankers wipe out dirty money". Toronto Star. Retrieved 2007-09-28.

4. ^ Chapter 12:  Black Magic and Its Exposé, by Kevin Moss

[edit]External links

Wikisource has the text of

the1911 Encyclopædia
Britannicaarticle Bank-
Notes.

 World banknotes and paper money catalog

 Shishanov V. The Assignats of 1802-1803
Categories: Banknotes | Accounting source documents | Paper products | Watermarking

http://say.expressivo.com/jennifer/bearer
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