Explaining Currency: New Zealand's bank notes and coins

IntroductionWe all use currency - bank notes and coins - but what isit really?This booklet describes what money is, what cash orcurrency is, how New Zealand’s bank notes are designedand made, and the life cycle of a typical bank note. Italso looks at the design and security features of ourbank notes and coins, and the history of currency inNew Zealand.What is money?In ancient times, people had to barter things to trade - forinstance, a cow for six pigs. This, however, was clumsy. Whatif you wanted six pigs but the pig seller didn’t want yourcow, as he or she wanted some sheep instead, which youdidn’t have?That’s where money came in. Money is a token or measurethat stores wealth. With it, in our example above, the tradecould take place. Also with money you can earn now andspend later. Early examples of money were shells and ironnails, as they could easily be counted. In due course, thesewere replaced by coins made of gold, silver, bronze and copperand much later paper money was developed.These days you can buy things using coins, bank notes,cheques, or credit cards, or by making an electronictransaction (EFT-POS etc); all are modern ways of movingmoney around. There’s a lot more money around than justcash. In the New Zealand economy now if you add up all thecash and all the other money, such as in bank deposits, itcomes to about $100 billion. The value of the bank notesand coins in circulation is much less at around $2 billion.However, despite talk about e-commerce, cash remains veryuseful for making relatively small transactions instantly andconveniently.What is legal tender?The virtue of cash – that you can buy or sell somethinginstantly and conveniently – comes from the concept of legaltender. Technically, legal tender means that if I owe youmoney and I present you with cash, then the debt is clearedthen and there. The only exception to this is if we both agreeto a different form of payment beforehand.So, for example, a shop doesn’t have to accept a cheque,and it doesn’t even have to accept cash, but the shop has toclearly indicate to you before you do business with them thatthey do not accept these forms of payment.There is a minor qualification to this, in that the law specifieslimits on using annoying amounts of coins as legal tender forbuying larger items. If I owe you, say, $1000, I can’t presentyou with $1000 worth of 5 cent coins and require you toaccept them as legal tender.Reserve Bank notes and coins are defined in the Reserve BankAct as “legal tender”. The Reserve Bank is the onlyorganisation in New Zealand that can issue bank notes andcoins and determine the denominations and design of thenation’s currency.Explaining Currency: New Zealand’s bank notes and coins 3