What is "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".
• Any type of money that has face value greater than its value as material substance. Used in this sense, fiat money is 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 debt, a form of "representative money."

According to economist William Stanley Jevons (1875), representative money 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 1895 economist Joseph Shield Nicholson wrote that credit expansion and contraction was in fact the expansion and contractions of 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.