What are Banknotes?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 December 2016
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Also known as paper money, notes, or bills, banknotes are negotiable instruments that are used as along with coins as legal tender. Most countries issue their own type of banknotes and coins for use internally, with the currency of each country having a specific trading value with the currency of other countries. This establishment of a rate of exchange between the banknotes issued by each nation make it possible to easily convert currency when traveling to another country.

There are several advantages to the use of banknotes. For the most part, the value assigned to a banknote is higher than the value assigned to any type of coin intended for general consumer use. The exception to this rule is any coins that are considered collectible or rare, which may have a current market value that is significantly higher than the original value of the piece. This means that it is possible for an individual to carry greater sums of money on his or her person using banknotes with more convenience.


Banknotes are produced and issued under the direction of a federal treasury department. The use of specific processes to produce the notes helps to minimize the opportunity for counterfeiting that leads to the distribution of contaminated currency. Some of the safeguards used in the production process include specific grades and types of paper, unique blends of inks, and a series of markings that are extremely difficult for counterfeiters to replicate. With the aid of modern technology and innovations in this process, the ability to include markings that are not readily seen by the untrained eye help to further inhibit counterfeiting attempts.

Along with traditional paper banknotes, there is also some experimentation with notes made from various blends of polymer materials. The idea behind polymer banknotes is to minimize the effects of usual wear and tear that tend to shorten the life of the paper notes. Plastic notes are also considered difficult to successfully counterfeit, presenting another advantage that is highly attractive. Several nations began to produce these types of hardy plastic notes during the 1980’s, eventually expanding the approach to include all denominations of money issued within those countries. Experiments with hybrid notes composed of a mixture of plastic and paper have also been developed in a few countries. While the hybrids and polymer versions of notes have not replaced all paper money yet, there is an expectation that polymer will become the standard within the next several decades.


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Post 4

@elizabeth23 - I wouldn't worry too much about the US and UK phasing out coins anytime soon. There are far too many in circulation for them to just pull an entire segment of our currency.

I actually prefer coins to banknotes as well, but more so as a collector. Having coins from throughout a countries history can really tell you a lot about the past.

One of my favorite coins I picked up was a giant penny from about 150 years ago. It is pretty amazing to look at it and think that once upon a time it actually used to be quite valuable.

Post 3

It seems like a lot of countries are looking to move away from paper money banknotes and switch completely to those that are more plastic to the feel. I guess these new notes will last a lot longer and make counterfeiting nearly impossible.

I was watching a special on the new plastic banknotes and they are just as thin as regular paper bills and fold just as easily, but they are pretty difficult to tear or burn. They seem to be specially made so that they won't suffer the normal damage that money does.

I imagine over time that the plastic bills would save our governments a fortune. Plus, there would of course be fewer trees cut down.

Post 2

While I like banknotes, I hear rumors every so often that various countries, especially the US and UK, will phase out coins. I hope this does not happen, because I like coins as something much less fragile, and I think they have their own value as parts of history, including thousands of years of tradition as how people exchange goods.

Post 1

I did not know until recently that most banks will not exchange coins, but only banknotes from other countries. However, I can understand why. For a bank doing a currency exchange- in this case from Euros to dollars -- it is unlikely they will have someone else try to exchange for that money very soon, and if they do it would probably be for a very high, even amount, and the coins would be less likely to get used again.

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