BANK NOTES 1. Definition.—A bank note is the promise of a bank to pay money to the bearer on demand. At one time it was the custom of banks in the United States to issue notes payable at some fixed time in the future. Such notes were called "post notes" and, at the time, there was a reason for their issue. Payments to dis tant parts of the country had to be sent by way of the slow-moving mails of the day, and robberies were not infrequent. Notes payable only at a given time and at a given place were not a tempting spoil for the highwayman.
The Bank of England makes a small issue of post notes, "seven-day bills," for • the purpose of making remittances thru the mails. In this country, how ever, we would consider the issue of post notes as an attempt of the bank to borrow on time, and would interpret it as evidence of unsoundness in the bank's condition. Undoubtedly the post note offers pecu liar temptations for unsound banking, and its issue by national banks has therefore been prohibited.
Bank notes are a form of credit money in the com munity or country where they are generally accept able. Like all other credit money they should not bear interest. Otherwise, their value would vary from time to time as interest-due dates approached. The first notes of the Bank of England bore interest and were inconvenient, as their value had to be fig ured whenever they changed hands.
Bank notes should be issued in uniform style, for round sums, and in such denominations as are con venient in daily transactions. They should be trans ferable without formality, and without recourse on the part of the holder to any previous holder except the issuing bank. Bank notes do not come under the statute of limitations. A note issued a hundred years ago is a valid claim today if the issuing bank is still in existence.
2. Evolution of the bank modern bank note is a product of slow development. Few coun tries, even today, have a perfectly satisfactory system of bank note issue. MacLeod finds that certificates representing deposits of gold and silver were issued in China, under the Chang dynasty, as early as 807. Credit instruments bearing some of the characteris tics of bank notes were issued by the goldsmiths of London in 1670. All these notes were fully "cov ered"—i.e., they were backed sovereign for sovereign
with a reserve of standard money. As these notes were more convenient to handle than the coins, which were of varied issues of differing weight and fineness, the custom of issuing them grew until the issuers be gan to print blank forms to be filled in with the names of depositors and the amounts due to them. Finally, notes were printed in round sums ready for issue, and these were made payable to bearer or to his order, according to the wishes of the depositor.
After a while persons and firms of well-known credit began to issue notes which were not entirely covered by a metallic reserve. These notes were more convenient than the ordinary promissory notes of small merchants, because the makers were well known, the notes were issued for even sums, and were payable on demand. As they were paid promptly, they soon came to form an important part of the circulating medium. Finally, the advantage of hav ing them non-interest bearing was seen, and they be came even more convenient.
In the beginning any one could issue these notes and put them into circulation if people were willing to accept them. This was true in the early years of banking in America. In the course of time, it was found that unregulated note issue was fraught with danger to society, and the practice has been hedged about with certain restrictions.
3. Cash reserve against have just seen that bank notes should be redeemable on demand in gold, or at least in some form of money that can be readily converted into gold. Since 1879, govern ment credit money in the United States has been con vertible into gold, but not always without inconven ience to both the bearer and the government. There can be no serious objection to making bank notes re deemable in legal-tender credit money as well as in gold so long as the easy convertibility of the legal tender is assured. But the utmost care must be taken to maintain this convertibility, and there is always some danger that it may disappear. Easy and sure redemption in gold is the first requisite of a good bank note, and it will remain so as long as gold continues to be the standard medium for settling international debts.