Banknote

A banknote (more commonly known as a bill in the United States and Canada) is a kind of currency, and under many juristictions are used as legal tender. With coins, banknotes make up the cash forms of all modern money. With the exception of non-circulating high-value or precious metal commemorative issues, coins are generally used for lower valued monetary units, while banknotes are utilised for higher values.

Related Topics:
United States - Canada - Currency - Legal tender - Coin - Money

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Originally, the value of money was determined by the intrinsic value of the material the money was made of, such as silver or gold. However, carrying around a lot of precious metal was cumbersome and often dangerous. As an alternative, banknotes would be issued. In financial terms, a note is a promise to pay someone money. Banknotes were originally a promise to pay the bearer an amount of precious metal stored in a vault somewhere. In this way the stored value (usually in gold or silver coins) backing the banknote could transfer ownership in exchange for goods or services.

Related Topics:
Intrinsic value - Silver - Gold

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The ability to exchange a note for some other kind of value is called "convertibility". For example a US silver certificate from the early 20th century was "payable in silver on demand" from the Treasury. If a note is payable in demand for a fixed unit, it is said to be fully convertible to that unit. Limited convertibility occurs when there are restrictions in the time, place, manner or amount of exchange.

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Today, this is no longer true; the currency of all countries is now fiat money not backed by gold or silver. There are a few alternative currency systems such as the Liberty dollar which are so backed, or the Ithaca Hours which are backed by the labor of the people of Ithaca, NY.

Related Topics:
Fiat money - Liberty dollar - Ithaca Hours - Ithaca, NY

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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 money, but not actual money. As banknotes became more widely used, they became more accepted as equivalent to precious metal. With the gradual removal of precious metals from the monetary system, banknotes are now simply considered as money.

Related Topics:
I.O.U. - Promissory note

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