Banknote

Banknote Definition

A Banknote is a legal tender issued by the bank and which is payable on demand to the bearer without any interest and is acceptable as the money. Banknotes can be used by the parties for settling the debts and are used in many of the financial transactions happening all over the world each and every day.

Initially, the objects like gold or silver were used by the persons for paying the goods or services received by them from the other party but eventually, these physical assets were replaced with the paper money and the coins as, over a period of time, governments started issuing the banknotes which could allow the exchange for the objects of value.

After that, it is used for many of the transaction which is happening daily in the country. All the banknotes which are issued in the country United States have the emblems, which indicate that they are being issued by the country’s Federal Reserve, and they also include the security features in them, which reduce the risk of forging.

Banknote new

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Example of Banknote

Mr. X is having a banknote of $ 100, which he gave to Mr. A as a gift. Now, Mr. A can use the received Banknote for any purpose like he can pay it for the services he has received from the third party, for paying the goods purchased, for repaying the debt which he might have taken earlier, or he can deposit the same in the bank account.

There is no restriction with Mr. A on the use of the Banknote by him as banknotes are the legal tender that can be used by the parties for any purpose which they want. It is the promissory note which is issued by the bank and which is payable on demand to the bearer without any interest and is acceptable as the money.

Thus after transferring the Banknote to Mr. A, Mr. X does not possess the right on the Banknote any longer.

Advantages of Banknote

The different advantages of the Banknote are as follow:

  1. There is no confusion with respect to the value of the Banknote as the value is apparent on the face of the note itself, and for the payment against any good or service or for any other purpose, that value will only be considered. So with this transaction can take place easily.
  2. They are used in many of the financial transactions happening all over the world each and every day.
  3. Although the paper used for the purpose of issuing the Banknote itself is worthless physically, it represents the value that is mentioned on its face. Also, these certificates are much lighter and more practical to carry around than piles of gold and silver, which makes it easy to use by the parties.
  4. All the banknotes include the security features in them, which reduce the risk of forging. This makes it safe for the person holding the Banknote.

Disadvantages of Banknote

The different disadvantages of the Banknote are as follow:

  1. Banknotes are less durable, especially when compared with the coins as even if the metal coins get melt in a fire, gets submerged undersea for many of the years, than also they have some value if they are recovered. This is not the case with the banknotes as they will lose their value in those cases.
  2. Before the national currencies and the efficient clearing houses, only the issuing bank can redeem the banknotes at its face value, which even cannot be discounted by the other branch of the bank. This was a very time-consuming process and required lots of effort for the person holding the Banknote.

Important Points of Banknote

Some of the important point with respect to the banknotes is as follow:

  • Bank Note is issued by the bank and is payable on demand to the bearer
  • The banknotes do not carry any interest in it, i.e., if there is any transfer of the banknotes or it is deposited in the bank, then no interest will be paid or received on it.
  • Initially, the objects like gold or silver were used by the persons for paying the goods or services received by them from the other party but eventually, these physical assets were replaced with the paper money and the coins as, over the period of time, governments started issuing the banknotes which could allow the exchange for the objects of value.
  • The value of the Banknote is apparent on the face of the note itself, and for the payment against any good or service or for any other purpose, that value will only be considered.
  • All the banknotes are issued in the country United States have the emblems which indicate that they are being issued by the country’s Federal Reserve and they also include the security features in them which reduce the risk of forging. Along with the United States, banknotes are used in different other nations as well, and their banknotes are issued by the respective central bank of that country.

Conclusion

The Banknote is a piece of paper that is issued by the bank, which represents the legal tender, and the same can be used for settling the debts. They are the promissory notes which are payable on demand to the bearer of the same and do not carry any interest in it, i.e., if there is any transfer of the banknotes or it is deposited in the bank, then no interest will be paid or received on it.

Many persons use the two terms banknotes and the currency notes interchangeably as both are the promissory notes, but the currency notes are used more frequently for the common dealings when compared with the banknotes.

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This has been a guide to Banknote and its definition. Here we discuss an example of the Banknote along with advantages and disadvantages. You can learn more about Finance from the following articles –

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