Full Answer
What is representative money?
Representative money or Receipt Money is any medium of exchange, printed or digital, it represents something of value, but has little or no value of its own (intrinsic value). Unlike some forms of fiat money (which may have no commodity backing), genuine representative money must have something of intrinsic value supporting the face value.
What is representative currency?
Representative money is just a piece of paper or a simple token that is easy to carry. Governments can issue the paper money in high denominations, such as $100, $1,000, and even $10,000 bills.
What are the functions of money economics?
- Money as a medium of exchange enables a person to buy or sell at different points of time.
- It has separated the acts of sale and purchase.
- A buyer can buy goods through money, and the seller can sell goods for money.
- Thus, buyers and sellers of goods/ services can solve their purposes with the help of money by using it as a medium of exchange.
How is money defined in economics?
The Economics Glossary defines money as follows: Money is a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange. Most authors find that the first two are nonessential properties that follow from the third.
What means representative money?
Representative money is a certificate or token that can be exchanged for the underlying commodity. For example, instead of carrying the gold commodity money with you, the gold might have been kept in a bank vault and you might carry a paper certificate that represents-or was "backed"-by the gold in the vault.
What is an example of representative money?
Representative money is a well-known form of money. It is money (normally paper money) that can be exchanged for the commodity behind it. Modern examples of representative money are credit cards and checks, and traditional examples include gold, tobacco, and copper.
Is representative paper money?
Representative Money refers to money which is usually made of paper. The value of representative money is much higher than its value as a commodity. It is accepted as money as it can be conveniently used for carrying out transactions.
What are the 4 types of money?
The 4 different types of money as classified by the economists are commercial money, fiduciary money, fiat money, commodity money. Money whose value comes from a commodity of which it is made is known as commodity money.
Is Bitcoin a representative money?
Bitcoins aren't backed by commodities, so they're not necessarily a form of representative currency. They are, though, backed by the faith of investors and—to some degree—governments, so they may be considered a form of fiat currency.
What is the difference between standard money and representative money?
The difference between fiat money and representative money is that fiat money's value depends on its demand and supply. In contrast, the value of representative money depends on the value of the asset that it is backed by.
Why is representative money important?
Because representative money is tied to a physical object, it is less prone to depreciation by inflation. With a representative money system, the government cannot just print as much money as they want. The amount of money they can print is limited by the amount of the commodity they have.
What are the advantages of representative money?
Representative money is a type of currency that is backed by a physical commodity, but it is not made of the commodity itself. For example, paper money is representative money because it is backed by gold or silver. The advantage of representative money is that it is easier to carry around than commodity money.
Is Bitcoin a fiat currency?
Is Bitcoin a Fiat Currency? Bitcoin is not a fiat currency, since it's not a legal tender issued by the government. Bitcoin is a cryptocurrency backed by blockchain technology and free of a central authority.
What are the 3 forms of money?
Economists differentiate among three different types of money: commodity money, fiat money, and bank money. Commodity money is a good whose value serves as the value of money. Gold coins are an example of commodity money.
What are 10 types of money?
The various types of money are:Commodity Money.Fiat Money.Fiduciary Money.Commercial Bank Money.Metallic Money.Paper Money.Reserve Money.
What are two types of money?
As members of the public, we only have access to two of them – physical money and commercial bank money.Physical money. Physical money, meaning cash and coins, is created by the US Treasury. ... Central bank reserves. ... Commercial bank money.
Which of the following is an example of representative money quizlet?
Using corn, cattle, or cotton as a medium of exchange is an example of (representative money/Commodity money).
What are examples of commodity money?
Examples of commodity money are gold and silver coins. Gold coins were valuable because they could be used in exchange for other goods or services, but also because the gold itself was valued and had other uses. Commodity money gave way to the next stage-representative money.
What are the three types of money?
Economists differentiate among three different types of money: commodity money, fiat money, and bank money. Commodity money is a good whose value serves as the value of money. Gold coins are an example of commodity money.
Why is representative money more useful?
Representative money consists of tokens or paper that have no intrinsic value; however, the holder of paper money has the right to demand that the paper money be converted to an underlying commodity upon which the value of the money is based. Representative money makes it easier to carry money and make large purchases.
What do you need to know about representative money?
It indicates that the person who provided you with the cheque will pay you the represented amount when it is presented to a financial institution capable of exchanging it for fiat money .
Where did representative money originate?
The earliest forms of representative money trace back to the ancient empires of China, Egypt and India . There, the palaces and temples were often equipped with commodity warehouses that issued certificates of deposit as evidence of a claim upon a portion of the goods stored in the warehouses.
Is fiat money a representative or physical money?
Fiat money is physical money – both paper money and coins. Representative money, on the other hand, is a form of currency that represents the intent to pay. The most widely used representative money example is a basic cheque.
Is fiat money backed by government?
Both fiat and representative money are backed by something. Fiat money is backed by the government, while representative money can be backed by different assets or financial instruments. For example, a personal cheque is backed by the money in a bank account.
What is representative money?
Representative money is any medium of exchange, often printed on paper, that represents something of value, but has little or no value of its own ( intrinsic value ). Unlike some forms of fiat money (which may have no commodity backing), genuine representative money must have something of intrinsic value supporting the face value.
Why was representative money created?
According to economist William Stanley Jevons (1875), representative money in the form of bank notes arose because metal coins often were "variously clipped or depreciated" during use, but representative money could not have its face value thus divided.
Who wrote that credit expansion and contraction was in fact the expansion and contraction of representative money?
In 1895 economist Joseph Shield Nicholson wrote that credit expansion and contraction was in fact the expansion and contraction of representative money.
What is fiat money?
Any type of money that has face value greater than its value as material substance. Used in this sense, most types of fiat money are a type of representative money. Historically, the use of representative money predates the invention of coinage.
What is representative money?
Representative money refers to any form of exchange that stands for a backing store of value. Yet this representing money itself usually has little to no value intrinsically, or by itself. This is a different concept from fiat money which might or might not possess a valuable store underlying it. For money to be legitimate representative money, it must have a valuable asset or item underlying the face value it carries.
What does the phrase "representative money" mean?
Subsequently William Howard Steiner the economist write in 1934 that the phrase for representative money signified that a particular quantity of bullion was on storage with the U.S. Treasury. The paper bills which were circulating represented this bullion.
What does it mean to represent money?
Representing money can also mean an item (that is not currency) which pledges the presenters’ intention to settle a debt or pay for a good or service. Checks which investors write to make deposits in Forex trading accounts against their own checking accounts represent a typical deployment of this kind of representative monies. It proves the holder wishes to pay for an item, and it can be easily changed for the underlying fiat cash money.
Where did representative money originate?
Throughout history, representative money actually goes back further than even the use of coins. In ancient Babylon, Egypt, China, and India, palaces and temples maintained warehouses of commodities. These would issue deposit certificates as proof of a value claim on some of the goods kept in the warehouse. This made the certificates for deposit a true and very early form of this representative money.
Why is representing money so popular?
In 1875, William Stanley Jevons the economist wrote that such representing money became popular as a result of the practice of noticeably clipping or depreciating the value of metal coins. When the precious metal coins remained in banks to guarantee their genuine physical value, these representations ensured the worth of the money. He reaffirmed the historical tradition of utilizing both paper and other forms of materials as representative monies.
Definition of Representative Money
Representative money is p aper currency that can be redeemed for a fixed amount of the commodity it represents.
Detailed Explanation
Paper certificates can be representative money when the paper certificates can be exchanged for the valuable asset, such as gold. Another example of representative money was tobacco notes issued by Virginia and North Carolina in 1715. After all, it was pretty cumbersome to carry or store a large amount of tobacco.
What is representative money?
Representative Money: Defined. Representative money occupies a middle ground between fiat and commodity money. Whereas fiat money has no intrinsic value in itself and it only has value because of the government and commodity money only has value in virtue of itself or its potential uses, representative money signifies a “claim” to some specific ...
Where did the first representative form of money come from?
Humans have used representative forms of money for a very long time. The first explicit evidence of representative money dates back to ancient China in which commodity warehouses issued certificates of deposit, guaranteeing the holder to a portion of the goods stored in the warehouse.
What is commodity money?
Commodity Money: Defined. Commodity money is money whose value comes from the intrinsic value or use of the object from which it is made. Some examples of commodities that have been used as a medium of exchange include gold, silver, cryptocurrency, salt, and cocoa. The value of commodity money derives from the substance or use ...
What are the different types of money?
In economics, people normally distinguish between 3 different types of money: Fiat money. Commodity money. Representative money. Before exploring representative money in-depth, let’s first go through a few brief definitions of each to understand the distinction between them.
How does fiat money get its value?
Fiat money gets its value only by a collective agreement, and so does representative currency.
Why does the value of money fall when the production of resources is low?
So if resource production is low, then the value of the money falls because it is a smaller portion of that resource. This would subject markets to periodic boom and bust cycles where the production of that resources rises and falls.
How is the amount of money the government can print limited?
The amount of money they can print is limited by the amount of the commodity they have . For instance, under the gold standard, the total amount of money the government could print was limited to the amount of gold contained in its reserves.
What is representative money?
Representative Money. Representative money is government-produced money backed by a physical commodity such as precious metals. Other forms of representative money are still in place, including financial instruments like checks and credit cards. These forms of payment are used today in place of traditional money, ...
What is the difference between fiat and representative money?
Fiat money is physical money—both paper money and coins—while representative money is a form of currency that represents the intent to pay such as a check. Both fiat and representative money are backed by something. Without any backing, they would be completely worthless. Fiat money is backed by the government, while representative money can be backed by different assets or financial instruments. For example, a personal check is backed by the money in a bank account.
What is fiat money?
Fiat money is backed by a country's government instead of a physical commodity or financial instrument. This means most coin and paper currencies that are used throughout the world are fiat money. This includes the U.S. dollar, the British pound, the Indian rupee, and the euro.
How is the value of fiat money determined?
That means the metals used to mint coins and the paper used for bills are not valuable themselves. Rather, the value of the money is determined by the government. It retains its value through government stability and that of the nation's economy .
Why does fiat money have value?
The money has value because the government says it does. In turn, people want to have fiat money.
What happens if the government prints too much money?
If the government prints too much money, the value of its currency drops. That was the case in Zimbabwe. Hyperinflation—extremely fast and out-of-control inflation—caused the currency to lose its value. The government began printing banknotes with higher values in order to keep up with inflation.
Is representative money a commodity?
Representative money, on the other hand, is valued based on the instrument backing it, whether that's a commodity, asset, or another financial instrument such as a check. A single dollar may, for instance, be worth a specific amount of gold. Most currencies are no longer backed by commodities.
