Distinguish between commodity money, fiat money, and representative money with examples. Which example correctly matches representative money?

Distinguish between commodity money, fiat money, and representative money with examples. Which example correctly matches representative money?

• A. Gold coins
• B. Silver bullion coins
• C. Gold certificates
• D. U.S. dollar notes

Answer: (C)

Representative money is money that has little or no intrinsic value of its own but can be exchanged for a specific amount of a commodity held in reserve. This sits in contrast to commodity money, where the money itself has value because it is made of a valuable material like gold or silver, and fiat money, which has value because the government says so and is not backed by a physical commodity. Gold certificates fit representative money because the certificate itself is simply a claim to a certain amount of gold held in reserve. It can be redeemed for gold, but the certificate isn’t the gold itself and isn’t money by fiat. By comparison, gold coins and silver bullion coins are examples of commodity money since their value comes from the metal content. U.S. dollar notes are fiat money because their value rests on government decree and public trust, not on a redeemable physical commodity.

Representative money is money that has little or no intrinsic value of its own but can be exchanged for a specific amount of a commodity held in reserve. This sits in contrast to commodity money, where the money itself has value because it is made of a valuable material like gold or silver, and fiat money, which has value because the government says so and is not backed by a physical commodity.

Gold certificates fit representative money because the certificate itself is simply a claim to a certain amount of gold held in reserve. It can be redeemed for gold, but the certificate isn’t the gold itself and isn’t money by fiat. By comparison, gold coins and silver bullion coins are examples of commodity money since their value comes from the metal content. U.S. dollar notes are fiat money because their value rests on government decree and public trust, not on a redeemable physical commodity.