Banknote
A banknote or bank notealso called a bill or simply a noteis a type of paper money that is made and distributed by a bank of issue, payable to the bearer on demand. Banknotes were originally issued by commercial banks, which were legally required to redeem the notes for legal tender when presented to the chief cashier of the originating bank. These commercial banknotes were 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 Commercial banknotes have primarily been replaced by national banknotes issued by central banks or monetary authorities.
By extension, the word "banknote" is sometimes used to refer more generally to paper money, but in a strict sense notes that have not been issued by banks, e.g. government notes, are not banknotes.
National banknotes are often, but not always, legal tender, meaning that courts of law are required to recognize them as satisfactory payment of money debts. 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.
History
Issue of banknotes
Today, a central bank or treasury is generally solely responsible within a state or currency union for the issue of banknotes. However, this is not always the case, and historically, private banks frequently handled all of a country's paper currency. Thus, many different banks or institutions may have issued banknotes in a given country. Commercial banks in the United States had legally issued banknotes before there was a national currency; however, these became subject to government authorization from 1863 to 1932. 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 Federal Reserve Notes.In a small number of countries, private banknote issuing continues to this day. For example, in the United Kingdom, certain commercial banks in 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 in Scotland and Northern Ireland. The Bank of Scotland was the first bank in Europe to successfully print its own paper banknotes, and entered circulation in 1696. The Bank of Scotland is currently the longest continuous issuer of banknotes in the world.
In the two special administrative regions of the People's Republic of China, arrangements are similar to those in the UK; in Hong Kong, three commercial banks are licensed to issue Hong Kong dollar notes, and in Macau, banknotes of the Macanese pataca are issued by two different commercial banks. In Luxembourg, the Banque Internationale à Luxembourg was entitled to issue its own Luxembourgish franc notes until the introduction of the Euro in 1999.
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 that was later taken over by the Monetary Authority of Singapore.
As with any printing, there is also a chance for banknotes to have printing errors. For U.S. banknotes, these errors can include board break errors, butterfly fold errors, cutting errors, dual denomination errors, fold over errors, and misalignment errors.
Materials used for banknotes
Paper banknotes
Until recently, most banknotes were made from cotton 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, and also does not contain the usual agents that make ordinary paper glow slightly under ultraviolet light. Unlike most printing and writing paper, banknote paper is infused with polyvinyl alcohol or gelatin, instead of water, to give it extra strength. Early Chinese banknotes were printed on paper made of mulberry bark. Mitsumata and other fibers are used in Japanese banknote paper.Most banknotes are made using the mould-made process, in which a watermark and thread are 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 microprint 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. Varnishing and coatings reduce the accumulation of dirt on the note for longer durability in circulation.
Another security feature is based on windows in the paper, which are covered by holographic foils to make it very hard to copy. Such technology is applied as a portrait window for the higher denominations of the Europa series of the euro banknotes. Windows are also used with the Hybrid substrate from Giesecke+Devrient which is composed of an inner layer of paper substrate with thin outer layers of plastic film for high durability.
History of counterfeiting and security measures
When paper bank notes were first introduced in England, they resulted in a dramatic rise in counterfeiting. The attempts by the Bank of England and the Royal Mint to stamp out currency crime led to new policing strategies, including the increased use of entrapment.The characteristics of banknotes, their materials and production techniques are topics that are not usually thoroughly examined by historians, even though there are now a number of works detailing how bank notes were actually constructed. This is mostly because historians tend to be more interested in a theoretical understanding of how money worked rather than how it was produced. The first great deterrent against counterfeiting was the death penalty for forgers, but this was not enough to stop the rise of counterfeiting. Over the 18th century, far fewer banknotes were circulating in England compared to the boom of bank notes in the 19th century; because of this, improved note-making techniques were not considered a compelling issue.
In the 18th century, banknotes were produced mainly by copper-plate engraving and printing, and they were single-sided. Note-making technologies remained largely unchanged during the 18th century. The first banknotes were produced by intaglio printing: this involved engraving a copper plate by hand and then covering it in ink to print the bank notes. Only with this technique, at that time, could one force the paper into the lines of the engraving to make suitable banknotes. Another difficulty in counterfeiting banknotes was the paper, as the type of paper used for banknotes was rather different from the paper commercially available at that time. Despite this, some forgers successfully forged notes by dealing with and consulting paper makers, in order to make a similar kind of paper themselves. Furthermore, watermarked paper has also been used since banknotes first appeared; it involved the sewing of a thin wire frame into paper mould. Watermarks for notes were first used in 1697, by Rice Watkins, a Berkshire paper maker. Watermarks and special paper made it harder and more expensive to forge banknotes, since more complex and expensive paper-making machines were needed.
In the early 19th century, the dramatically increased demand for bank notes slowly forced the banks to refine the technologies employed. In 1801, watermarks, which previously were straight lines, became wavy—an idea of William Brewer, a watermark mould maker. This made counterfeiting bank notes harder still, at least in the short term, and in 1803 the number of forged bank notes fell to just 3000, compared to 5000 the previous year. Banks asked skilled engravers and artists to help them make their notes more difficult to counterfeit during the same time period, which historians refer to as "the search for the inimitable banknote." During this time, bank notes also began to be double-sided and have more intricate patterns.
The ease with which paper money can be created, by both legitimate authorities and counterfeiters, has led to a temptation in times of crisis such as war or revolution, or merely a spendthrift government, to produce paper money which was not supported by precious metal or other goods; this often led to hyperinflation and a loss of faith in the value of paper money, e.g. the Continental Currency produced 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, the devaluation of the Yugoslav dinar in the 1990s, etc. Banknotes may also be overprinted to reflect political or economic changes that occur faster than new currency can be printed.
In 1988, Austria produced the 5000 Schilling banknote, which is the first foil application to a paper banknote in the history of banknote printing. The application of optical features is now common throughout the world. Many countries' banknotes now have embedded holograms.