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Representative money or receipt money is any medium of exchange, physical or digital, 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 .
Fiat money can look similar to representative money (such as paper bills), but the former has no backing, while the latter represents a claim on a commodity (which can be redeemed to a greater or lesser extent). [2] [3] [a] Government-issued fiat money banknotes were used first during the 13th century in China. [4]
This was a fairly typical transition from commodity to representative to fiat money, with people trading in other goods being forced to trade in gold, then to receive paper money that purported to be as good as gold, and finally a fiat currency backed by government authority and social perceptions of value.
Most forms of money are categorised as mediums of exchange, including commodity money, representative money, cryptocurrency, and most commonly fiat money. Representative and fiat money most widely exist in digital form as well as physical tokens, for example coins and notes.
Fiat money, if physically represented in the form of currency (paper or coins), can be accidentally damaged or destroyed. However, fiat money has an advantage over representative or commodity money, in that the same laws that created the money can also define rules for its replacement in case of damage or destruction.
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The alternative to a commodity money system is fiat money which is defined by a central bank and government law as legal tender even if it has no intrinsic value. Originally fiat money was paper currency or base metal coinage, but in modern economies it mainly exists as data such as bank balances and records of credit or debit card purchases, [3] and the fraction that exists as notes and coins ...
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