A banknote (often known as a bill, paper money or simply a note) is a type of negotiable instrument known as a promissory note, made by a bank, payable to the bearer on demand. When banknotes were first introduced, they were, in effect, a promise to pay the bearer in coins, but gradually became a substitute for the coins and a form of money in their own right. Banknotes were originally issued by commercial banks, but since their general acceptance as a form of money, most countries have assigned the responsibility for issuing national banknotes to a central bank. National banknotes are legal tender, meaning that medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation.[1] Historically, banks sought to ensure that they could always pay customers in coins when they presented banknotes for payment. This practice of "backing" notes with something of substance is the basis for the history of central banks backing their currencies in gold or silver. Today, most national currencies have no backing in precious metals or commodities and have value only by fiat. With the exception of non-circulating high-value or precious metal issues, coins are used for lower valued monetary units, while banknotes are used for higher values. The idea of a using durable light-weight substance as evidence of a promise to pay a bearer on demand originated in China during the Han Dynasty in 118 BC, and was made of leather.[2] However the first known banknote was first developed in China during the Tang and Song dynasties, starting in the 7th century. Its roots were in merchant receipts of deposit during the Tang Dynasty (6

8907), as merchants and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial transactions.[3][4][5] During the Yuan Dynasty, banknotes were adopted by the Mongol Empire. In Europe, the concept of banknotes was first introduced during the 13th century by travelers such as Marco Polo,[6][7] with proper banknotes appearing in 17th century Sweden. A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. Negotiable instruments are often defined in legislation. For example, according to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument is a promissory note, bill of exchange or cheque payable either to order or to bearer. Cheque also includes demand draft [Section 85A]. More precisely, it is a document contemplated by a contract, which (1) warrants the payment of money, the promise of or order for conveyance of which is unconditional; (2) specifies or describes the payee, who is designated on and memorialized by the instrument; and (3) is capable of change through transfer by valid negotiation of the instrument. Since a negotiable instrument is a promise of a payment of money, the instrument itself can be used by the holder in due course as a store of value; although instruments can be transferred for amounts in contractual exchange that are less than the instruments face value (known as discounting). Under United States law, Article 3 of the Uniform Commercial Code as enacted in applicable state law governs the use of negotiable instruments, except banknotes (Federal Reserve Notes, a.k.a. "paper dollars").