Commodity and Representative Money

Actual money may be either commodity money or representative money. Commodity money is made of certain metal, and its face value is equal t its intrinsic value. It is also referred to as full-bodied money. Commodity money is both a medium of exchange and a store of value.

Representative money means those notes which are freely convertible into full-bodied money. It may be made either of cheap metal or convertible paper money. This is not a good medium for strong purchasing power, because for strong purchasing power, because it commands little intrinsic value.

Representative money is further sub-divided into: (i) Convertible money, and (ii) Inconvertible money. Convertible money refers to that money which the issuing authority is under an obligation to convert into commodity money. Inconvertible money, country to representative money, is that money which the issuing authority is under no obligation to convert into commodity money.

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