What is representative money in economics?
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 representative money give an example?
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. An item has intrinsic value if it still has value even if it is not used as money.
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 is characteristic of 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). Any type of money that has face value greater than its value as material substance.
What is another name for representative money?
The term representative money has been used variously to mean: A claim on a commodity, for example gold certificates or silver certificates. In this sense it may be called “commodity-backed money”.
When did representative money start?
Legal tender laws now make it illegal to refuse legal currency in favor of some other form of payment. The first paper money issued in the United States occurred on March 10, 1862. The $5, $10, and $20 bills issued were made legal tender by an act of Congress on March 17, 1862.
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.
What are the types of representative money?
Representative money
- A claim on a commodity, for example gold and silver certificates. In this sense it may be called “commodity-backed 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.
What is representative money and how does it work?
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, with the intent to pay at a later date.
What is the difference between fiat money and representative money?
Key Takeaways 1 Fiat money is both physical money and legal tender and is backed by a nation’s government. 2 Representative money is backed by a physical commodity such as precious metals or instruments like checks and credit cards. 3 Before 1971, the world’s currencies were representative and backed by gold.
What is the role of money in the economy?
Economic money systems began to be developed for the function of exchange. The use of money as currency provides a centralized medium for buying and selling in a market. This was first established to replace bartering. Monetary currency helps to provide a system for overcoming the double coincidence of wants.
How did the system of commodity money evolve into representative money?
The system of commodity money eventually evolved into a system of representative money. This occurred because gold and silver merchants or banks would issue receipts to their depositors – redeemable for the commodity money deposited.