What is a Bank Note?

//What is a Bank Note?
What is a Bank Note? 2017-10-01T01:48:32+00:00

Definition: A Bank note, also called paper money or bills, is a form of bearer promissory note issued by a bank and payable on request. Banknotes are legal tender and can be used to settle any and all debts.

What Does Bank Note Mean?

What is the definition of bank note? They are considered bearer notes because they don’t they are not payable to an individual or entity. The note is payable to its owner. As the possession of the note changes, so doesn’t the individual who must be paid. Contrast that with a check that is payable to Joe. If Joe gives Steve his check, the check is still payable to Joe. However, if Joe gives Steve a banknote, Steve can use it to purchase other goods or deposit it in the bank.

In the United States, only the Federal Reserve Bank can issue banknotes. The federal government established the Federal Reserve in 1913 as the US centralized bank in charge of the money supply and all legal tender. Before this many different banks were allowed to issue their own types of notes and currency. This often led to confusion and exchange issues due to regional currencies. Now all currencies in the US have been outlawed except the dollar issued by the Fed and backed by the US government.

Originally, paper money was backed by gold or other valuable assets allowing banknote bears to trade their paper money in for the gold equivalent. This system has long since passed and now only the trust of the government backs the value of the money.

Due to the value of the currency, banknotes are difficult to counterfeit and new security features are added to their production each year. US currency is printed on special paper with a top-secret ink formula and numerous security features like watermarks, holograms, and color changing ink.

Let’s look at an example.

Example

There are various types of banknotes issued for specific purposes. However, most of them are just prototypes and are not legal tenders. Some examples are plate proof banknote, test notes, educational notes, replica banknotes, and hell banknotes (which are commonly found in Asian countries. They are burnt in rituals to send money to the dead).

Specimen banknotes are printed in limited quantities and given to central banks to help them identify notes from other countries. To distinguish specimen notes from original ones, “SPECIMEN” is usually printed across its face to prevent people from using it as a legal tender.

Summary Definition

Define Bank Notes: Bank note means a piece of paper issued by a bank that represents legal tender and can be used to settle debts.