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Banknote

2007 Schools Wikipedia Selection. Related subjects: Currency

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   A banknote (more commonly known as a bill in the United States and
   Canada) is a kind of negotiable instrument, a promissory note made by a
   bank payable to the bearer on demand, used as money, and under many
   jurisdictions is used as legal tender. Along with coins, banknotes make
   up the cash forms of all modern money. With the exception of
   non-circulating high-value or precious metal commemorative issues,
   coins are generally used for lower valued monetary units, while
   banknotes are used for higher values.

   Originally, the value of money was determined by the intrinsic value of
   the material the money was made of, such as silver or gold. However,
   carrying around a lot of precious metal was cumbersome and often
   dangerous. As an alternative, banknotes would be issued. In financial
   terms, a note is a promise to pay someone money. Banknotes were
   originally a promise to pay the bearer an amount of precious metal
   stored in a vault somewhere. In this way the stored value (usually in
   gold or silver coins) backing the banknote could transfer ownership in
   exchange for goods or services.

Convertibility

   The ability to exchange a note for some other kind of value is called
   "convertibility". For example a US silver certificate was "payable in
   silver on demand" from the Treasury until 1965. If a note is payable on
   demand for a fixed unit, it is said to be fully convertible to that
   unit. Limited convertibility occurs when there are restrictions in the
   time, place, manner or amount of exchange.

   A common misconception is that a bank note that is inconvertible is
   necessarily unbacked (so-called " fiat money"). Most of the confusion
   centers around the failure to distinguish between two types of
   convertibility:
    1. Physical convertibility, where a unit of currency (a dollar) can be
       exchanged at the issuing bank for a given physical amount of
       something, and
    2. Financial convertibility, where a dollar can be exchanged at the
       issuing bank for a dollar's worth of the bank's assets.

   The importance of financial convertibility can be seen by imagining
   that people in a community one day find themselves with more paper
   currency than they wish to hold — for example, when the main shopping
   season has ended. If the paper currency is physically convertible (for
   one ounce of silver, let us suppose), people will return the unwanted
   paper currency to the bank in exchange for silver, but the bank could
   head off this demand for silver by selling some of its own bonds to the
   public in exchange for its own paper currency. For example, if the
   community has 100 units of unwanted paper money, and if people intend
   to redeem the unwanted 100 units for silver at the bank, the bank could
   simply sell 100 units worth of bonds or other assets in exchange for
   100 units of its own paper currency. This will soak up the unwanted
   paper and head off people's desire to redeem the 100 units for silver.

   Thus, by conducting this type of open market operation — selling bonds
   when there is excess currency and buying bonds when there is too little
   — the bank can maintain the value of the paper currency at one ounce of
   silver without ever redeeming any paper currency for silver. In fact,
   this is essentially what all modern central banks do, and the fact that
   their currencies might be physically inconvertible is made irrelevant
   by the maintenance of financial convertibility. Note that financial
   convertibility cannot be maintained unless the bank has sufficient
   assets to back the currency it has issued. Thus, it is an illusion that
   any physically inconvertible currency is necessarily also unbacked.

History

   Paper money originated in two forms: drafts, which are receipts for
   value held on account, and "bills", which were issued with a promise to
   convert at a later date.

   Money is based on the coming to pre-eminence of some commodity as
   payment. The oldest monetary basis was for agricultural capital: cattle
   and grain. In Ancient Mesopotamia, drafts were issued against stored
   grain as a unit of account. A " drachma" was a weight of grain. Japan's
   feudal system was based on rice per year – koku.

   At the same time, legal codes enforced the payment for injury in a
   standardized form, usually in precious metals. The development of money
   then comes from the role of agricultural capital and precious metals
   having a privileged place in the economy.

   Such drafts were used for giro systems of banking as early as Ptolemaic
   Egypt in the first century BC.

   The perception of banknotes as money has evolved over time. Originally,
   money was based on precious metals. Banknotes were seen as essentially
   an I.O.U. or promissory note: a promise to pay someone money, but not
   actual money. As banknotes became more widely used, they became more
   accepted as equivalent to precious metal. With the gradual removal of
   precious metals from the monetary system, banknotes evolved to
   represent fiat money.

   Generally, a central bank or treasury is solely responsible within a
   state or currency union for the issue of banknotes. Historically, many
   different banks or institutions may have issued banknotes in a country.
   By virtue of the complex constitutional setup in the United Kingdom,
   two of the union's four constituent countries (Scotland and Northern
   Ireland) continue to print their own banknotes for domestic
   circulation, with the UK's central bank (the Bank of England) printing
   notes which are legal tender in England and Wales, and are also usable
   as money in the rest of the UK.

Paper money collecting as a hobby

   Banknotes from all around the world donated by visitors to the British
   Museum, London.
   Banknotes from all around the world donated by visitors to the British
   Museum, London.

   Banknote collecting, or Notaphily, is a rapidly growing area of
   numismatics. Although generally not as widespread as coin and stamp
   collecting, the hobby is increasingly expanding. Prior to the 1990s,
   currency collecting was a relatively small adjunct to coin collecting,
   but the practice of currency auctions, combined with larger public
   awareness of paper money have caused a boom in interest and values of
   rare banknotes.

   In the 1950s, Robert Friedberg published the landmark book Paper Money
   of the United States. Friedberg devised an organizing number system of
   all types of U.S. banknotes; the system is widely accepted among
   collectors and dealers to this day, and the volume has been regularly
   updated.

   Another pioneer of cataloguing banknotes was Albert Pick, a well-known
   German notaphilist (born 15 May 1922 in Cologne) who published a number
   of catalogs of European paper money, and, in 1974, the first Standard
   Catalog of World Paper Money. His collection of over 180,000 banknotes
   was eventually housed at the Bavarian Mortgages and Exchange Bank
   (Bayerischen Hypotheken- und Wechselbank, now HypoVereinsbank). This
   catalog underwent several incarnations, and currently is published as a
   three volume group. Volume I, called Specialized Issues, includs notes
   issued by local authorities, which circulated in a limited area. Volume
   II called General Issues covers notes issued on a national scope, dated
   1368 through 1960. Volume III covers Modern Issues dated 1960 to
   present. Each of the volumes is updated regularly, with Volume III now
   updated every year, Volumes I and II every 3 or so years. While Pick no
   longer edits the catalogs (since 1994 the honour has passed to George
   S. Cuhaj), the catalogs are still commonly referred to as 'Pick
   Catalogs' and dealers and collectors alike refer to banknotes by their
   'Pick number.' Current issues of the three volumes include:
     * Standard Catalog of World Paper Money: Specialized Issues (10th Ed.
       Vol. 1) by George S. Cuhaj. Paperback - 1200 pages. (January 2006).
     * Standard Catalog of World Paper Money: General Issues to 1368-1960
       (11th Ed. Vol. 2) by George S. Cuhaj (Editor). (December 2006).
     * Standard Catalog of World Paper Money: Modern Issues, 1961-present
       (12th Ed. Vol. 3) by George S. Cuhaj. (May 2006).

   For years, the mode of collecting banknotes was through a handful of
   mail order dealers who issued price lists and catalogs. In the early
   1990s, it became more common for rare notes to be sold at various coin
   and currency shows via auction. The illustrated catalogs and "event
   nature" of the auction practice seemed to fuel a sharp rise in overall
   awareness of paper money in the numismatic community. Entire advanced
   collections are often sold at one time, and to this day single auctions
   can generate well in excess of $1 million dollars in gross sales.
   Today, eBay has surpassed auctions in terms of highest volume of sales
   of banknotes. However, as of 2005, rare banknotes still sell for much
   less than comparable rare coins. There is wide consensus in the paper
   money collecting arena that this disparity is diminishing as paper
   money prices continue to rise at a rapid rate.

   There are many different organisations and societies around the world
   for the hobby including the International Banknote Society (IBNS).

   Retrieved from " http://en.wikipedia.org/wiki/Banknote"
   This reference article is mainly selected from the English Wikipedia
   with only minor checks and changes (see www.wikipedia.org for details
   of authors and sources) and is available under the GNU Free
   Documentation License. See also our Disclaimer.
