Banknote

DEFINITION of 'Banknote'

A negotiable promissory note issued by a bank and payable to the bearer on demand. The amount payable is stated on the face of the note. Banknotes are considered legal tender, and, along with coins, make up the bearer forms of all modern money.

Also known as a "bill" or a "note."

BREAKING DOWN 'Banknote'

Originally, objects such as gold and silver were used to pay for goods and services. Eventually, they were replaced by paper money and coins that were backed by precious metals.

Currently, banknotes are backed only by the government. Although in earlier times commercial banks could issue banknotes, the Federal Reserve Bank is now the only bank in the United States that can create banknotes.

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