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.

Full Answer

What are some examples of representative money?

In economics, people normally distinguish between 3 different types of money:

• Fiat money
• Commodity money
• Representative money.

What are the disadvantages of representative money?

With representative money, the value of money is tied to a physical good, so the value of the money is directly dependent on how much of that physical resources there is. So if resource production is low, then the value of the money falls because it is a smaller portion of that resource.

Which is an example of representative money?

What are 3 functions of a bank?

• Accepting Deposits. The bank collects deposits from the public.
• Granting of Loans and Advances. The bank advances loans to the business community and other members of the public.
• Agency Functions. The bank acts as an agent of its customers.
• General Utility Functions.

What does representative money mean?

• minors
• adults declared legally incompetent, and
• adults who have drug or alcohol problems.

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.

What's the meaning of representative money?

Definition of representative money : paper money backed by an equal amount of gold or silver coin or bullion held by a government.

What is representative money quizlet?

Representative money is an item such as a token or piece of paper that has no intrinsic value, but can be exchanged on demand for a commodity that does have intrinsic value, such as gold, silver, copper, and even tobacco.

Is Cheque a representative money?

Fiat money is physical money—paper money and coins, while representative money is something that represents the intent to pay . Cheque is not a fiat money because it is not backed by the central bank or RBI.

What is representative paper money in short?

Representative paper money: Representative paper money is the paper money which is fully backed by gold and silver reserves. Under the monetary system of representative money, the quantity of gold and silver which is equal to the value of paper currency issued are kept in the reserves by the monetary authority.

Why is it called fiat money?

Fiat money (from Latin: fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver, and typically declared by a decree from the government to be legal tender. Throughout history, fiat money was sometimes issued by local banks and other institutions.

What's the difference between representative money and fiat money?

Representative Money: An Overview. 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.

What is the difference between commodity money and representative money?

Commodity money is an item used for money that has intrinsic value. Representative money is an item such as a token or piece of paper that has no intrinsic value, but can be exchanged on demand for a commodity that does have intrinsic value.

Why is representative money more useful?

Instead of hauling around your physical goods, you can instead have a wallet of banknotes that represent some portion of your store of goods. This also makes it easier to use than commodity forms of currency as representative currency forms a neutral medium of exchange through which people can trade goods and services.

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.

What are the 5 types of money?

There are 5 different types of money in the world: Fiat, commodity, representative, fiduciary, and commercial bank money. They also all have three functions in common; they serve as a medium of exchange, as a store of value, and as a unit of 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.

Where did representative money originate?

Historically, the use of representative money predates the invention of coinage. In the ancient empires of Egypt, Babylon, India and China, the temples and palaces often had commodity warehouses which issued certificates of deposit as evidence of a claim upon a portion of the goods stored in the warehouses, a form of "representative money".

What is representative money?

The concept of money has developed over time. A thousand years ago, money was based on gold or silver coins. Today, there are different types of money, including fiat and representative money.

Where have you heard of representative money?

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.

What do you need to know about representative money?

A cheque itself is not money. It simply represents a transfer of value that has still not occurred. 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.

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 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.

Why is representative money less prone to depreciation?

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.

Why is the government less control over the creation of money and currency?

In a representative money system, because the value of money is tied directly to some specific object, the government has less control over the creation of money and currency. Governments could not just print more money than the gold reserves they have. The finite amount of gold limits the amount of money the government can inject into ...

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.