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.

Why does paper money have value?

Paper bills, or “fiat” money, also have no intrinsic value; their worth is determined solely through supply and demand, and they are declared legal tender by government decree. The most important element that separates one national currency from another is its value.

Is a bank note the same as money?

A banknote is a negotiable promissory note which one party can use to pay another party a specific amount of money. ... 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."