What Are Banknotes and How Are They Used?

What Is a Banknote? A banknote is a negotiable promissory note which one party can use to pay another party a specific amount of money. A banknote is payable to the bearer on demand, and the amount payable is apparent on the face of the note. Banknotes are considered legal tender; along with coins, they make up the bearer forms of all modern money. A banknote is known as a "bill" or a "note."Key TakeawaysA banknote is a "bill" or form of currency that one party can use to pay another party.In the U.S., only the Federal Reserve Bank is allowed to print banknotes for money.While banknotes used to be backed by precious metals such as gold and silver, in 1971, the United States government went off the gold standard, making American banknotes a fiat currency that is backed instead by good faith. How Banknotes Work Before modern societies and financial systems were set up, people used valuable objects, such as gold and silver, to pay for goods and services through bartering. Eventually, pape...