Quick Answer: What is the difference between banknotes and currency notes? Well a banknote is a type of negotiable instrument or legal tender known as a promissory note. These notes are made by a bank and guaranteed by Central Government. A currency note on the other hand is still printed paper or bills but it is directly issued by a country’s monetary authority.
Background: History of Currency and Banknotes
In the earlier days, a currency was synonymous with using valuable commodities such as gold and silver to pay for goods and services.
This partially existed in the form of gold and silver certificates; where a specified amount on the certificates represented physical currency.
What Is A Banknote?
What Is A Currency Note?
After many changes, however, they were replaced with newer currency notes and coins. Even the highest currency in the world – the dinar uses coins as well.
So What Is The Difference Between A Banknote And Currency Note?
The key difference between them is that a banknote is a promissory note produced and authorized by a bank.
In certain countries, banknotes could be subdivided national and federal banknotes. A currency note, on the other hand, was directly produced and issued by that country’s monetary authority.
In countries like the United States, there exists only one time of note and that is the currency note due to federal banknotes falling out of favour.
Many of us probably hadn’t realized that there is a difference between banknotes and currency notes.
This is simply because people still use the term ‘banknotes’, to denote paper money since a bank is where they would withdraw that money. Interestingly, they still served a similar purpose!
Types of Banknotes
We mentioned federal notes in the USA before. But what are federal notes and are there other types of banknotes?
National banknotes were used before currency notes were introduced in 1863 to be made payable to the bearer.
These could exchange ownership for the purchase use of goods and services.
They were also capable of being purchased internationally or locally just as other currencies with exchange rates.
At one time, people were able to use them alongside gold and silver certificates where a specified amount on the certificates represented US dollars.
The Federal Banknotes
Federal banknotes were introduced in 11th century China but rose in the US market in accordance with the Federal Reserve Act 1913. This was due to worries of the contractions within the fluctuating market but was removed in 1971.
Interestingly enough, despite these still existing in circulation, they are no longer considered a currency but instead promissory banknotes.
Their current purpose is now similar to that of a bank certificate which still holds value and can be used as a deposit or bond.
In other countries like the UK, banknotes are still legal tenders and only have certain denominations starting from £5, £10, £20 and £50. There exist no in-betweens but that can be facilitated using coins or other banknotes.
Types of Currency Notes
Present-day, currency notes are used as legal tenders issued by the government, in good faith. It may seem contradictory and confusing but the current dollar currency of the United States is now known as Federal Reserve notes NOT Federal Reserve banknote.
This was a move of using a fiat currency instead of a commodity-backed currency. This is a newer currency that is backed by a government’s decree and is now used worldwide especially in Europe. While the money is actually worthless, their values are now maintained by that country’s economic status, military power and exportation reserves such as oil. Ironically, those examples blur the lines slightly but now the economy is much more stable. Other examples of such currencies include; the Euro, Yen, Pounds, Swiss franc, etc.
Circulation of Banknotes and Currency Notes
Currency notes can also be controlled via circulation by who has the relevant authority to distribute certain notes. For Instance, the Indian Rupee (₹INR) is distributed by the Reserve Bank of India in sets of ₹2, ₹5, ₹10, ₹20, ₹50 and ₹100.
Only the monetary authorities can issue ₹1 notes. Other differences of the Rupee include their currency notes carrying the signature of the secretary of finance while the banknotes carry the governor’s signature.
In countries such as the United Kingdom, the government tends to issue limited-edition notes such as the AA serial line or the Jane Austen £5 notes which are estimated to be worth £50,000. Currencies that will be taken from circulation are also given a grace period to use up or exchange within banks for newer currencies.
Some collectors, however, like to retain those notes as memorabilia which can then be resold due to value increase. Apparently, there are over £1.8 billion old banknotes still missing after their final usage date in just the UK alone.
In Singapore, a whole set of Orchid Series, issued from 1967-1976 ($25, $50, $100, $500, $1,000) can be exchanged for $2,900. That’s an increase of over 70%! This seems to drive competition and is seen as a form of liquid investment to some due to worldwide interest because the value keeps increasing.
Some countries still allow old banknotes to be exchanged despite age as they never depreciate. According to the Money Saving Expert, there are over £1.8 billion old banknotes still missing past their final usage date.
They cannot be physically spent in normal stores but can be returned to the country’s national bank or post office where new currency will be issued to you. The process isn’t extremely strict but they will require your ID and bank account. Optionally you can post to the Department of Nex who will deposit it into your bank account.
In order to still acquire new banknotes or ones out of circulation, you can simply contact your local bank to place an order or go to the bank and from their immediate stock.
Usually, if you go in person, you will receive a face value currency (the actual value on the note or coin).
However, if you purchase banknotes online via online auctions or services, you will receive a collectible value (unique value) which is higher than a face value currency.
This could due to the currency’s age, rarity, condition, materials, etc.
Distribution of Banknotes and Currency Notes
Currency notes and banknotes are also controlled via circulation on who has the relevant authority to distribute notes.
For Instance, in India, the Indian Rupees (INR) are distributed by the Reserve Bank of India in sets of 2, 5, 10 and 20, 50, 100 while the monetary authorities can issue 1 INR currency notes.
Other differences also include certain currency notes carrying the signature of the secretary of finance while the banknotes carry the governor’s signature in countries like India.
Physical Currency And The Rise of Digital Currency
With the rise of digital currency such as crypto, paper money is being used less and less. This is because there are many advantages to physical currency. Here are a few:
● As a result of advanced printing, paper money can be counterfeited much easier and depreciating the value of the currency.
● The cost of processing and manufacturing physical currencies is quite high compared to using electronic and coin payment methods.
● These can be easily damaged through ripping or wear and tear.
● There is a cost to verify the authenticity of currencies.
Review: Banknotes vs Currency Notes
Here are some similarities and differences between banknotes and currency notes:
1. Both are paper money or bills
2. Both notes have the power to purchase.
3. Both notes have limits.
4. Banknote is generally not issued for common dealing in common purposes.
3. Currency note is used in common dealing for purchase of items. Even with this you also purchase banknotes.
4. Currency Note is issued by the authority like in India it is issued by RBI (reserve bank of India).
5. Banknote has an expiry period that ends after the expiry of time.
But still, they are the same there is no difference it just a name which is used in economics or in man behavior common language.
The overall change from commodity-backed banknotes to a fiat currency has allowed more stabilization, instead, relying on the economics of a country. This strategy allows the government to properly regulate currency notes in times of inflation and recessions. It will allow countries to also combat other variables such as interest rates and credit for a healthy economy.