2017-01-04 Wed

Banknotes Vs Currency Notes Thought bank notes and currency notes are synonymous?

Well... here’s a little eye-opener, banknotes and currency notes are not actually same, though they serve same purposes in the monetary system of a country!

Shocked? Worry not; let’s study them in detail.

What are Banknotes?

The banknote is a type of negotiable instrument known as a promissory note, made by a bank and guaranteed by Central Government, payable to the bearer on demand or a piece of paper money, constituting a central bank's promissory note to pay a stated sum to the bearer on demand.

Basically, in simple language, the banknote is a term used for a note (paper money) issued by the central bank of a nation with a guarantee or a promise to pay the amount specified on the face of the note. Therefore in case of India, the notes issued by the Reserve Bank of India (RBI) are bank notes.

Types of Banknotes

Now banknotes in India are further divided into two types: a) On Demand b) Promissory notes.

a) On Demand: The banknotes issued by RBI before 1970 have a clause by the RBI stating "I Promise to pay the bearer ON DEMAND the sum of rupees ___".

b) Promissory Note: Indian Banknotes issued by RBI from 1970 changed this clause to "I PROMISE to pay the bearer the sum of ___ rupees".

Difference Between Banknotes and Currency Notes

As opposed to this, currency notes are issued by the government of a country directly. It is an official currency of the nation and not a mere promise of a bank.

So in India, INR 1 notes are currency notes issued under the authority of the Government of India while the notes of other denominations of INR 2, 5, 10, 20, 50, 100 and 2000 are banknotes issued by RBI. The notes issued by the Government of India, i.e. the currency notes have the signature of the secretary of Finance Ministry and the banknotes issued by RBI have the RBI Governor's signature.

While both serve the common purpose in day to day transactions they are fundamentally different. Both are legal tenders and can be used for buying and selling.

Hope this article helped you in understanding your currency better!

Happy collecting!