What are Banknotes?
A banknote or commonly known as a bill is a kind of negotiable instrument (a document that guarantees payment to the payee a set amount of money on-demand or on a specific period) typically issued by a bank or any other licensed authority, payable to the payee on demand.
Commercial banks are the original issuers of banknotes. They are also legally obliged to exchange the notes for legal tender (typical gold or silver coin) when presented to the lead cashier or the issuing bank. Most national banknotes are considered to be legal tender, with that said; they are recognized by the courts of law to be substantial payment for monetary debts.
In 7th century China, during the Tang dynasty, paper money was first introduced. However, it was not until the Song dynasty (11th century) when real paper money was used. The use of paper money later expanded throughout the Mongol Empire (Yuan dynasty China). The concept of paper money was later brought into Europe by European explorers like Marco Polo. In the early 1800s, Napoleon also issued paper banknotes.
People’s view of banknotes eventually changed over time. Some see it as money based on precious metals like gold and silver. Others see banknotes as I.O.U. or promissory notes (a promise to pay a specific amount of precious metals).
Different Types of Banknotes of the United States Dollar
Throughout history, the United States government has issued multiple types of United States dollar banknotes. These banknotes served different purposes significant during the era it was released, such as banknotes used to help finance the American Revolution. Below are the different types of United States dollar banknotes.
In 1775, the Continental Congress began issuing paper money known as Continental currency. The Continental currency was issued just after the American Revolution began. The currency was used to help fund the war effort. After the war, the currency eventually lost its value.
Treasury Notes are interest-bearing notes that are issued by the United States during times of uncertainty like war and financial disruption.
Demand Notes were initially issued due to a coin shortage during the American Civil War. The demand notes were released in three denominations of $5, $10, and $20.
United States Notes
United States Notes or Legal Tender Notes replaced Demand Notes as the United States’ main currency. They cannot be exchanged for coins but are accepted for the payment of taxes and debt. They have a distinctive red seal printed on them and were initially in denominations of $1, $2, $5, $10, $20, $50, $100, $500. And in 1878, denominations of $1,000, $5,000, and $10,000 were issued.
Due to the public’s hoarding of coins during the Civil War, the U.S. government concluded to substitute coins with paper currency to solve the problem. The currencies were available in denominations of 3¢, 5¢, 10¢, 15¢, 25¢ and 50¢.
Interest Bearing Note
Interest bearing notes bore an interest of 5% or 7.3% annually, and were issued from 1863 until 1865. The notes were $10, $20, $50, $100, $500 and $1,000 in denominations.
Compound Interest Treasury Notes
Compound Interest Treasury Notes were authorized by the United State Treasury Department from 1863 until 1864. They bear 6% per annum interest compounded semi-annually.
Gold Certificates were notes that can be exchanged for gold coins and were issued from 1865 until 1934.
National Bank Notes
As opposed to other United States banknotes, National Bank Notes are not issued by United States government banks, but rather by banks authorized by the government.
National Gold Bank Notes
The National Gold Bank Notes are very similar to the National Bank Notes, and the difference is that these notes are redeemable in gold and are mostly issued by private banks in California.
Silver Certificates can be changed to silver coins from 1878 until 1967 and in raw silver bullion after that. Silver certificates were released from 1878 through 1964.
Refunding Certificates only came in $10 denomination and was issued only in 1879. These notes carry a special interest of 4% annually.
United States Postal Notes
The U.S. postal notes were exclusively only accessible by mail. The notes can only be sent through the mail, and the amount to be sent must not exceed $5.
Treasury or Coin Notes
Treasury notes can be changed to coins and were issued from 1890 until 1891. The notes came in different denominations of $1, $2, $5, $10, $20, $50, $100, $500, and $1,000.
Federal Reserve Bank Notes
In 1914, after establishing the Federal Reserve System, the Federal Reserve Bank Notes were released. These notes were liabilities issued by the Federal Reserve Bank. The notes were eventually discontinued in 1934.
Federal Reserve Notes
Federal Reserve Notes were different from Federal Reserve Bank Notes but were also initially issued in 1914. Federal Reserve Notes are considered legal tender and can be used to pay taxes and debt.