What is commodity money and fiat money?

Commodity money has some intrinsic value due to the content of precious metal it is made up of or backed by, but debasement or increases in precious metal supply can cause inflation. Fiat money is backed only by the faith of the government and its ability to levy taxes.

What is commodity 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.

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 is called commodity money?

Commodity money is money whose value comes from a commodity of which it is made. Examples of commodities that have been used as media of exchange include gold, silver, copper, salt, peppercorns, tea, decorated belts, shells, alcohol, cigarettes, silk, candy, nails, cocoa beans, cowries and barley.

What is representative money 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.

What is a representative paper 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 a commodity money in economics?

What is a commodity money system?

A commodity money system is a monetary system in which a commodity such as gold or seashells is made the unit of value and physically used as money. The money retains its value because of its physical properties.

What is representative paper 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). 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.

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 difference between commodity money and representative money?

A gold coin is an example of commodity money. Representative money represents a claim on a commodity. We sometimes refer to commodity or representative money as ‘backed currency.’ All national currencies today that are in circulation, and that central banks issue and manage, are fiat currencies.

What is the difference between fiat money and commodity money?

Unlike Commodity money, fiat money has no intrinsic value. It is backed by the government and created by central banks. And it is because there is no limitation on supply that inflation is more likely under fiat money. Governments and central banks can simply create more of it when needed.

Which of the following is fiat money?

This includes money in circulation such as paper money or coins. 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.