Introduction 

By being banknote collector it is inevitable to learn about history, economics, materials and technology that encompass studying paper money, which in turn certainly expands a person’s views and knowledge of the world we live in. However we may look at it, whether as a hobby, as a lucrative endeavor or both for that matter, in the end it may or may not be profitable but for most prospective collectors it will hopefully be fulfilling activity that is also rewarding in terms of knowledge accumulated.

History of paper money

Paper bills were first used by the Chinese, who started carrying folding money during the Tang Dynasty (A.D. 618-907) mostly in the form of privately issued bills of credit or exchange notes and who used it for more than 500 years before the practice began to catch on in Europe in the 17^th century. During this dynasty, local currency was used between local traders to make the transfer of goods much simpler. This came about in the use of notes which promised traders that they would get their money from a trustee. Much wider use of this method came about in the 11^th century with the Song dynasty. Banknotes back then weren’t really used as currency but more as a promise that a trader will get their money.

The Song Dynasty saw this new development in trade and sought to capitalize on it. Seeing that paper money was much more efficient to trade with than coins the dynasty started issuing state-backed paper money in the 1120s.

The actual knowledge of paper money only arrived in Europe during the 13^th century through explorers such as Marco Polo who visited the Yuan Dynasty during the 13^th century and brought his findings back to Europe. This technology started being used in Italy around this period through the use of promissory notes, the predecessors of actual banknotes. This came about because of the need for secure money transfer at a time where manually transporting money across the country was dangerous.

The name for banknotes actually derives from a 14th-century Italian phrase “nota di banco” which literally means banknote.

Stockholm’s Banco, Sweden’s first bank, issued the first real banknotes in Europe in 1661. The bank was founded by Johan Palmstruch, who issued the banknotes as deposit certificates. Also it is important to mention that first paper money issued in U.S. was in Massachusetts Bay Colony in 1690 (one of the earliest New England settlements in present day Massachusetts).

The first bank to initiate the permanent issue of banknotes was the Bank of England. Established in 1694 to raise money for the funding of the war against France, the bank began issuing notes in 1695 with the promise to pay the bearer the value of the note on demand. They were initially handwritten to a precise amount and issued on deposit or as a loan. There was a gradual move toward the issuance of fixed denomination notes, and by 1745, standardized notes were being printed. Fully printed notes that did not require the name of the payee and the cashier’s signature first appeared in 1855.

In Japan, in 1872, the Meiji government in attempt to establish a standard type of money, adapted gold standard paper currency called the yen. Soon after, in 1873, Germany issued its first paper currency calling it the gold mark.

The oldest existing collectible paper note is from the Ming Dynasty and dates from 1368. Its paper was made from the inner bark of the mulberry tree.

When looking at the history of banknotes, one has to conclude that the need for easier and faster means of trade was the core initiator and main drive of its development. It is exactly the same drive that generates research and development of new technologies in our efforts for constantly creating new and more efficient ways of trading.

The value of an old banknote is mainly a function of its rarity and condition.

Key factors that make a banknote rare and/or valuable

• Print run (numbers issued/in existence)

• Face value or denomination

• Demand

• Condition

• Serial number

• Signature

• Specimen note

Print run (numbers issued/in existence)

If a particular banknote was issued in limited numbers or was withdrawn prior/from circulation for different reasons and only very small number remain for collectors to obtain, than these notes will potentially be valuable.

Face value or denomination

Denomination or face value of a banknote is the amount of a currency or the value of a note at the time of issuance, as is printed on the bill itself by the issuing authority. High denomination banknotes are usually printed in low numbers, consequently making them scarce and harder to obtain.

Demand

If there is demand in a sense that particular banknote originates from a region, country or a time period popular within collectors community, than that certainly increases overall value of that particular note.

Condition

One of the main factors that influence value of a banknote is its condition. Condition of banknote can significantly impact its value as most of notes get damaged over time due to various reasons. Banknotes that have been in circulation get all kinds of damage like usual signs of wear, discoloration, tears, folds, stains etc. which can lower their value significantly. On the other hand, banknotes that are in pristine condition can command a significant premium and are very sought after by the collectors worldwide. Therefore, for a collector of banknotes it is of a crucial importance to know how to grade banknotes properly.

Grading paper money

Banknote grading

Paper currency grading is the process of determining the grade or condition of a banknote, one of the key factors in determining its value. Small differences in grade can mean significant differences in value.

The process of grading can be especially subjective in instances when just subtle differences cause grade change, which often happens with the higher grade banknotes.

Factors that determine a banknote grade are crispness, brightness, depth of color, centering of the printed area, folds, condition of the edges etc. All of the factors that determine a grade of a banknote should be taken into a consideration during the process of evaluation.

Certification services professionally grade banknotes, like PCGS (Professional Coin Grading Service) or PMG (Paper Money Guaranty) to name a few.

For very rare banknotes, their limited availability makes them desirable in almost any condition. However, for the rest of the banknotes one of the key factors in determining their value is condition. Relatively common banknotes in exceptional condition can command a premium.

The process for determining the grade of a banknote is based on primarily investigating surface preservation and production quality.

Both PMG and PCGS grading services use a 70-point numerical scale derived from the internationally recognized Sheldon grading scale, universally accepted by collectors. It is important to note that all banknotes graded 65 and higher must also meet the criteria of Exceptional Paper Quality (EPQ) for PMG grading service, or Premium Paper Quality (PPQ) in the case of PCGS grading service.

Standard paper money grades

• Poor (PO-1)
• Fair (FR-2)
• About Good (AG-3)
• Good (G-4, 6)
• Very Good (VG-8, 10)
• Fine (F-12)
• Choice Fine (F-15)
• Very Fine (VF-20, 25, 30)
• Choice Very Fine (VF-35)
• Extremely Fine (XF-40)
• Choice Extremely Fine (XF-45)
• About Uncirculated (AU-50, 53, 55)
• Choice About Uncirculated (AU-58)
• Uncirculated (UNC 60-62)
• Choice Uncirculated (UNC 63-64)
• Gem Uncirculated (UNC 65-66) EPQ or PPQ
• Superb Gem Uncirculated (UNC 67-69) EPQ or PPQ
• Gem Uncirculated (UNC 70) EPQ or PPQ

Serial number

Low serial number on the Russian 1000 Rubles banknote from 1919

Each note has a unique serial number. Serial number on a banknote is one of the elements that could potentially make that particular banknote rare or valuable. Banknotes are printed in sheets, with a serial number assigned to each note. Serial number consists of unique combination of letters and numbers, with the numbers preceded by a two-letter prefix that always starts with letters AA, for example AA01 000001.

What should be looked first, are the banknotes with the low serial numbers i.e. very first produced notes, which are greatly sought after by collectors and usually are very valuable. In many cases these notes are given as a gift to monarchs or state officials. Low serial numbers are generally considered from …00001-…01000, i.e. first thousand banknotes produced. However, highly desirable, although exceedingly rare would be the first hundred issued banknotes which would in turn generate great premiums.

Aside from low serial numbers, a lot of collectors are always on a lookout for serial numbers depicting a date of particular event, a date of cultural significance or simply a banknote with numeric appeal. A note with a “numeric appeal” can signify for example “lucky numbers” such as number 8 which is considered lucky in Chinese culture or is simply a note with interesting order of numbers. Examples of such notes can be of various forms, i.e. a solid serial number note, where every digit is the same 11111111, a note with partially repeating numbers e.g. 8888 or sequential numbers 1234 etc.

The personal preferences of a collector essentially determine existence of interest for a particular note with “numeric appeal” and consequently demand for it. 

Signature

Banknote usually contains two signatures, most often of persons that chair the institution that oversees or guarantees the value of the paper currency and are responsible for its issuing. In most of the cases they are government officials such as Central Bank Governor or Finance Minister, although in some instances tradition and archaic laws make exceptions so that like in case of England, the Chief Cashier’s signature is found on the banknotes.

Of great interest to collectors are banknotes signed by officials that where briefly or in short time in tenure, consequently limiting period of time of issuance and therefore causing a relatively low number of issued banknotes. Also, in the case signee was famous or important historical figure that would greatly add value to a particular banknote.

“Brief tenure (time of holding an office) and general popularity of signee on a note essentially determines banknote rarity in respect to a signature on it.”

One example of such a note is $10 Cuban Peso Banknote (The Series of 1960) with Ernesto “Che” Guevara signing as President of the National Bank of Cuba. When Fidel Castro assumed government control, Che Guevara assumed the bank presidency on 26.11.59 and served there for 456 days until his disagreements with Fidel caused his early departure from the office. As a head of the National Bank of Cuba it became Guevara’s duty to sign the Cuban currency, which he instead of using his full name signed solely by “Che”, regarded by many as his personal distaste for money and the class differences it brought about. Although these banknotes are not extremely rare or valuable they are still highly sought by collectors worldwide and a very good example of desirability of a note in regards to signature on it.

Specimen note

A specimen banknote is a sample note, basically a first print, generally printed in very limited quantities intended for distribution to domestic/foreign central and commercial banks, as well as law enforcement agencies in order to accustom them with newly issued currency.

It is important to emphasize that specimen banknote has a fully completed note design and that it has all characteristics of a banknote intended for general circulation.

In some instances, specimen banknotes are distributed as gifts to dignitaries or to employees of central banks, often in special presentation albums, although it is important to note that it is not intended for use as actual currency.

In order to avoid use of specimen banknotes as legal tender notes, they are distinctively marked in a way to distinguish them from an issued notes intended for general circulation. Specimen banknotes are most commonly overprinted or perforated with an inscription “SPECIMEN” or “CANCELLED”. Also, in most cases, specimen notes have especially identifiable (all-zero) “00000000” serial number.

Because of a relatively limited availability, specimen notes are generally regarded as scarce and are greatly sought after by collectors.

Basic supplies in banknote collecting

For the safe handling of banknotes and proper maintaining of a collection it is very important to have adequate means of storage, i.e. banknote holders or albums. Also, of the uttermost importance is to have good reference guide in order to be able to identify and determine the value of a banknote.

The basic supplies a collector of banknotes should have are

• Cotton gloves (not necessary, but advisable)

• Holders

• Currency album

• Reference literature

Cotton gloves

When handling paper money it is recommended to wear soft cotton gloves as it protects the surface of the note from the natural oils on our fingertips that can cause damage over time. Cotton gloves are an inexpensive and effective choice to protect valuable notes as they absorb perspiration, preventing moisturizing and soiling by sweat, thus preventing notes from attracting dirt. It is worth mentioning that they are very cozy, snug fit made and washable.

Currency holders

Banknotes should always be placed in certain type of currency holder with the aim of effectively protecting them from various hazards. Currency holders, colloquially known as “sleeves”, primarily enable safe storage when handling collectible banknotes. Made of inert, reliable, dust-proof and transparent material suitable for displaying currency (the transparency of the holder allows for viewing both sides of the note) makes currency holders a very effective way to preserve, protect and display banknotes.

Currency album

Safely storing banknotes is very important element in currency collecting. One of the most practical ways for safe, easily accessible and nicely displayed banknote collection is the use of suitable currency album. This is a paramount for valuable banknotes that usually are very old and that should be handled with great care. In order to avoid banknotes being damaged due to various hazards like environmental influence or improper handling, appropriate currency album should be chosen. Album for currency collecting may be in a form of binder with currency storage pages (sheets) that contain pockets for holding banknotes, or it can be album for banknotes with bound sheets. The main advantage of a “binder” album is the ability to add additional sheets to the album, if needed, whereas with albums with bound sheets we are not able to do so. However, in most cases, albums with fixed number of bound sheets are of very good quality and great eye appeal i.e. cover of album being made out of leather with specifically inscribed title of particular area of collecting, etc. which makes them very desirable to collectors.  

Reference literature

In order to properly identify a banknote and be acquainted with its value or current price on the market it is essential to have reputable reference guide. For a worldwide collector, highly regarded Standard Catalog of World Paper Money, General Issues, (1368-1960) + Standard Catalog of World Paper Money, Modern Issues, (1961-Present) by Tracy L Schmidt duo provide the most comprehensive and complete reference on the market to world bank notes issued since 1368.

Proper identification, description, valuation as well as details of the latest varieties of world banknotes ensure its place as the most respected reference guide for worldwide paper money on the market today.

For a collector of United States paper money recommendation is A Guide Book of United States Paper Money 7th Edition by Arthur L. Friedberg as a reference guide. Rarely reference guide contains such a vast amount of images, type listings, and price values as found here. It provides detailed description on all type of U.S. issued notes and currency since 1861, including error notes. Moreover it covers topics such as signatures on U.S. currency, grading standards, star notes etc. encompassing even the subject of design, printing and distribution of cash. The fully updated seventh edition builds on the previous editions making it highly regarded reference guide among both collectors and dealers.