Banknote

A banknote (often known as a bill, paper money, or simply a note) is a type of negotiable promissory note, made by a bank, payable to the bearer on demand.Banknotes were originally issued by commercial banks, which were legally required to redeem the notes for legal tender (usually gold or silver coin) when presented to the chief cashier of the originating bank. These commercial banknotes only traded at face value in the market served by the issuing bank. Commercial banknotes have primarily been replaced by national banknotes issued by central banks. National banknotes are generally legal tender, meaning that medium of payment is allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Historically, banks sought to ensure that they could always pay customers in coins when they presented banknotes for payment. This practice of 'backing' notes with something of substance is the basis for the history of central banks backing their currencies in gold or silver. Today, most national currencies have no backing in precious metals or commodities and have value only by fiat. With the exception of non-circulating high-value or precious metal issues, coins are used for lower valued monetary units, while banknotes are used for higher values. In China during the Han dynasty promissory notes appeared in 118 BC and were made of leather. Rome may have used a durable lightweight substance as promissory notes in 57 AD which have been found in London. However, Carthage was purported to have issued bank notes on parchment or leather before 146 BC. Hence Carthage may be the oldest user of lightweight promissory notes. The first known banknote was first developed in China during the Tang and Song dynasties, starting in the 7th century. Its roots were in merchant receipts of deposit during the Tang dynasty (618–907), as merchants and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial transactions. During the Yuan dynasty, banknotes were adopted by the Mongol Empire. In Europe, the concept of banknotes was first introduced during the 13th century by travelers such as Marco Polo, with European banknotes appearing in 1661 in Sweden. Counterfeiting, the forgery of banknotes, is an inherent challenge in issuing currency. It is countered by anticounterfeiting measures in the printing of banknotes. Fighting the counterfeiting of banknotes and cheques has been a principal driver of security printing methods development in recent centuries. Paper currency first developed in Tang dynasty China during the 7th century, although true paper money did not appear until the 11th century, during the Song dynasty. The usage of paper currency later spread throughout the Mongol Empire or Yuan dynasty China. European explorers like Marco Polo introduced the concept in Europe during the 13th century. Napoleon issued paper banknotes in the early 1800s. Cash paper money originated as receipts for value held on account 'value received', and should not be conflated with promissory 'sight bills' which were issued with a promise to convert at a later date. The perception of banknotes as money has evolved over time. Originally, money was based on precious metals. Banknotes were seen by some as an I.O.U. or promissory note: a promise to pay someone in precious metal on presentation (see representative money), but were readily accepted - for convenience and security - in the City of London for example from the late 1600s onwards. With the removal of precious metals from the monetary system, banknotes evolved into pure fiat money. Development of the banknote began in the Tang dynasty during the 7th century, with local issues of paper currency, although true paper money did not appear until the 11th century, during the Song dynasty. Its roots were in merchant receipts of deposit during the Tang Dynasty (618–907), as merchants and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial transactions. Before the use of paper, the Chinese used coins that 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 they had with that person. If they showed the paper to that person, they could regain their money. Eventually, the Song Dynasty paper money called 'jiaozi' originated from these promissory notes.