Banknote

A banknote is a specific form of paper money issued by a bank. It acts as a promise to pay the person holding the note upon demand. While the term is often used generally to describe all paper money, it strictly refers to notes issued by banks. In many modern nations, these are called national banknotes. They are often issued by a central bank or a specific monetary authority.

When a note is declared legal tender, courts must recognize it as a valid way to pay debts.

The mechanism of banknote value has changed significantly over time. Originally, commercial banks issued notes that they were legally required to redeem. A customer could take a note to the bank's chief cashier and exchange it for legal tender, such as gold or silver coins. This process is known as "backing" the notes with something of substance. Today, most national currencies do not have this kind of backing in precious metals. Instead, they function as fiat money. This means the money has value because the government or central bank declares it to be so.

There are different ways that banknotes are issued around the world. In most countries, a single central bank or treasury is responsible for all notes. However, some places still use private issuers. For example, in the United Kingdom, certain commercial banks in Scotland and Northern Ireland print their own notes for local use. The Bank of Scotland was the first in Europe to successfully print its own notes in 1696. It remains the longest continuous issuer of banknotes in the world.

Other regions, like Hong Kong and Macau, also allow specific commercial banks to issue local currency notes.

Historically, the way notes were made has evolved to combat counterfeiting. In the 18th century, notes were often single-sided and made using copper-plate engraving. This process is called intaglio printing. It involves engraving a copper plate by hand and covering it in ink. To make notes harder to fake, makers began using watermarks. Rice Watkins, a paper maker in Berkshire, first used watermarks in 1697.

Later, in 1801, a maker named William Brewer introduced wavy watermarks. These changes helped reduce forgery; for instance, forged notes in England fell from 5,000 in 1802 to 3,000 in 1803.

The physical materials used for banknotes are very different from ordinary paper. Most banknotes are made from cotton paper, often mixed with fibers like linen or abaca.

This makes the paper much more resilient to wear and tear. Because the average life of a paper banknote is only two years, durability is vital. Instead of water, makers often infuse the paper with polyvinyl alcohol or gelatin for extra strength. Some notes even use a "hybrid substrate," which is a paper layer covered in thin plastic film. Other countries use polymer, which is a type of plastic, to increase durability.

Security features are integrated into the very structure of the note. Many notes use a mould-made process to incorporate watermarks and security threads. A thread might be simple, or it might include magnetic or fluorescent elements. Some use "windowed thread," a technology invented by the Portals group in the UK, where the thread appears on the surface periodically.

Modern notes also use holographic foils and windows in the paper. These features, such as the portrait window on the Euro, make it extremely difficult for counterfeiters to copy the money.

History shows that managing the supply of banknotes is a delicate task. If a government produces too much paper money without sufficient support, it can lead to hyperinflation. This happened during the American Revolution with the Continental Currency and during the French Revolution with the Assignats. In extreme cases, the value of money can collapse. For example, by 1922, one gold Austro-Hungarian krone was worth 14,400 paper Kronen. This demonstrates why the stability of the issuing authority is so important to the economy.