A banknote is a piece of paper which holds a specific monetary value and is regarded as legal tender in the same manner as a coin. Banknotes are traditionally issued with higher values, whereas coins are given lower denominations.
Banknotes traditionally have more elaborate designs than coins, and can feature images of historic and notable figures such as inventors and political figures as well as those of the issuing country’s monarch or head of state. They also use finely detailed engraving, high quality paper, watermarks, latent images and internal security strips to prevent forgery.
The hobby of collecting banknotes is known as notaphily, and although it is a far younger discipline it is considered a specific area within the study and collection of money known as numismatics. Many notaphilists focus their collections on a particular area of banknotes, such as the country of origin, subject of design, time period or serial number, and notes are carefully graded in a similar manner to rare coins. The grading system as specified by the International Bank Note Society is known as the International Bank Note Society grading system.
The hobby of collecting banknotes was, for years, considered a minor area of numismatics and widely ignored. Then in the 1950s Robert Friedberg published the landmark book Paper Money of the United States. Friedberg devised an organizing number system of all types of U.S. banknotes, which is widely accepted among collectors and dealers to this day.
Another pioneer in the field was the German numismatist Albert Pick, who began collecting banknotes during the 1930s. He published a number of catalogues of European notes, and in 1974 produced the first Standard Catalogue of World Paper Money which continues to be reprinted and updated each year. There are three different volumes. One covers the period from 1368-1960, another covers 1961-Present, and the third deals with Specialized Issues.
In 1961 the International Bank Note Society (IBNS) was formed when a small group of collectors recognized the need to separate collecting bank notes from other numismatic interests. The Society of Paper Money Collectors (SPMC) was also formed in 1961. SPMC has over 1,750 members from around the world. Membership is open to anyone interested in paper money or related areas such as checks, stocks, engravings, and other fiscal ephemera. Their award-winning publication, Paper Money, is published six times per year.
The term ‘notaphily’ came into use during the 1970s, when it was coined by the stamp dealers Stanley Gibbons Limited to describe the growing area of banknote collecting as a separate discipline to coin collecting.
Today there is a large community of banknote collectors across the globe, with a number of dedicated organisations, web sites and publications.
Modern banknotes evolved from early promissory notes that were issued in return for storing coins and other valuable goods. The practice of using these notes began in ancient China, where early coins were strung together on a rope. Many rich merchants found their strings of coins too heavy to carry around easily, and they were often left with a trustworthy person. The merchants were given a slip of paper recording the amount left which could then be used to regain the money at a later time. Eventually, the paper money called ‘jiaozi’ originated from these promissory notes.
This practice evolved further during the reign of the Song Dynasty of the 7th century, when a lack of copper led to a shortage of coins. Jiaozi notes were used to combat the problem, and the successive Yuan Dynasty replaced coins with paper money altogether.
As with many Chinese inventions, the concept of promissory bank notes took several hundred years to reach Europe. The first European banknotes were issued in 1660 by Stockholms Banco, the forerunner to the Bank of Sweden. However, the bank ran out of coins to redeem its notes in 1664 and ceased operating soon afterwards.
In 1694 the Bank of England was founded by Scottish merchant William Patterson to act as an independent credit institute as the request of the merchants who had backed William III of Orange in his succession to the throne. It began to issue printed ‘Goldsmithnotes’ as promissory notes from English goldsmiths for account deposits, and in 1697 notes began to feature a watermark (showing a looped border and scroll on the left, with the words 'Bank of England' clearly visible) which an Act of Parliament prohibited anyone else from using.
Across the Atlantic the Massachusetts Bay Colony became the first of the colonies in America to issue permanently circulating banknotes in the early 1690s. By the early 1700s each of the thirteen American colonies had issued their own banknotes and immediately after adoption of the Constitution in 1789, Congress chartered the first Bank of the United States and authorized it to issue banknotes. In 1862, after the closure of the First and Second Banks of America, the United States Federal government began to print banknotes.
Types of banknote
Main article: List of types of banknote
Main article: List of banknote collecting terms
The world’s most expensive banknote
The most expensive bank note ever sold is the $1000 ‘Grand Watermelon’ U.S red seal note. The portrait on Grand Watermelon notes is of Civil War-era General George Gordon Meade who commanded Union Army troops at the Battle of Gettysburg. Only two examples are known to exist, with the other in the museum at the Federal Reserve Bank of San Francisco, and in December 2006 the note was sold during a private sale brokered by Heritage Auction Galleries for a world record price of $2,255,000.
The same note then appeared at auction in January 2014, as part of the Heritage Auctions FUN US Currency Signature sale, where it sold for a new world record price of $3,290,000.