Banknotes are promissory notes issued by banks, used as legal tender in financial transactions worldwide. Originally, banknotes were issued in exchange for precious metals, but now they represent financial value. The Federal Reserve Bank regulates the amount of currency in the US, and banknotes from other countries are issued by their respective central banks. Banknotes can have numismatic value and are collected as memorabilia.
A banknote is a promissory note issued by a bank. It is paid on demand, sometimes in the form of precious metals such as gold and silver, and sometimes in exchange for assets such as bonds issued by the bank. Banknotes are considered legal tender, and are used in billions of financial transactions around the world every day. A bank note, in other words, is currency or money.
Originally, people paid for goods and services with items of physical value, such as precious metals. Over time, governments began issuing banknotes, pieces of paper that could be exchanged for these valuables. Although the paper itself has no physical value, it represents value. These certificates were much lighter and more practical to carry than the piles of gold and silver. Smaller denominations of currency were issued on coins made of less precious metals, so people generally carried a mixture of paper notes and small coins.
Over time, the use of a gold or silver standard to back banknotes was abandoned. This means that a bank note in the United States, for example, can no longer be exchanged with a bank for gold or silver, but is still convertible into other assets of financial value. This is known as financial convertibility, which differentiates it from physical convertibility. Money that is not physically convertible is still valuable as long as banks have the assets to hold it.
In the United States, the Federal Reserve Bank regulates the amount of currency that is manufactured and distributed by the Bureau of Printing and Engraving. All banknotes in the United States have emblems indicating that they are issued by the Federal Reserve. The values of these notes are also clearly printed and include security features to reduce the risk of counterfeiting. Banknotes of other nations are issued by their respective central banks.
Some people collect historical examples of banknotes or banknotes from other countries because they are memorabilia. This is a branch of numismatics, the study of money, currency, and financial systems. In some cases, a bank note can no longer be considered legal currency, but may have acquired numismatic value. A Confederate banknote from the American Civil War, for example, is not technically money, but it does have monetary value because it is an object of interest. People can also establish collections of old coins in addition to paper money.
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