Banknote is basically a negotiable promissory note to which only banks can issue. These banknotes are payable to bearer on demand and the payable amount is visible on the face of note in question. These banknotes are also considered legal tender – much like with coins, they are considered as another form of money.

What is a Banknote?

Back then, people are using objects similar to silver and gold in order to pay for services and goods rendered to them.

As time goes by, coins and paper money have taken over, replacing physical assets. Precious metals are then considered as new form of currencies.

In today’s time, there’s a system applied and only the government can release banknotes. Even in earlier times, commercial banks may issue a banknote. Now however, only the Federal Reserve Bank in the US can issue and create it. Globally speaking, there are billions of financial transactions that are using banknotes on a daily basis.

Relationship of Banknote and Today’s Currencies

Fiat money has taken its value from its relationship between the law of supply and demand. If you think that it has something to do with the value of the physical material of the currency, think again. Because of the reason that fiat money isn’t associated to physical reserves, there’s less risk involved because of hyperinflation.