Representative money is any medium of exchange that represents something of value, but has little or no value of its own (intrinsic value). However, unlike some forms of fiat money (which may not have anything of value backing it), to be a genuine representative money, there must always be something valuable supporting the face value represented.
More specifically, 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".
- 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. 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".
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 using representations for the value stored in banks ensured its worth. He noted that paper and other materials have been used as representative money.
In 1934 economist William Howard Steiner wrote that the term was used "at one time to signify that a certain amount of bullion was stored in the Treasury while the equivalent paper in circulation" represented the bullion.
- Robert A. Mundell, The Birth of Coinage, Discussion Paper #:0102-08, Department of Economics, Columbia University, February 2002.
- Jon Hooks, Economics:fundamentals for financial services providers, p. 201 ISBN 0-89982-494-3, ISBN 978-0-89982-494-9 Retrieved September 9, 2009
- William Howard Steiner, Money and banking, p. 30, H. Holt and company, 1941.
- John Maynard Keynes (1965) . "1. The Classification of Money". A Treatise on Money. 1. Macmillan & Co Ltd. p. 7.
Fiat Money is Representative (or token) Money (i.e something the intrinsic value of the material substance of which is divorced from its monetary face value)
- William Stanley Jevons, Money and the Mechanism of Exchange, Chapter XVI, "Representative Money"
- Joseph Shield Nicholson, A treatise on money and essays on monetary problems], Chapter VI, Effects of Credit or "Representative Money" on prices, pp. 72–74, A. and C. Black, 1895.