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Representative money is a particularly vague term, which usually means money backed by a physical commodity, but can also encompass fiat money as well. There's

Representative money is a particularly vague term, which usually means money backed by a physical commodity, but can also encompass fiat money as well. There's nothing inherently magical about something being legal tender. The only difference between a $1 cheque and a $1 note is risk. The probability of a cheque bouncing is more likely than the USA economy collapsing into hyperinflation.

eduardordm 14y ago
As you said, once I give you a dollar bill, the transaction is over. If I give you a check it will takes days for the actual transaction to happen and the money transferred (which can possibly end up in a physical transfer of cash) Money does not depend on any kind of backing at all, for instance: the US gov has been flooding the market with dollars backed by the promise it will buy them back someday. Some countries don't even bother buying dollars anymore, they rely 100% on swap agreements. Even if the economy collapses, the dollar will still be accepted for paying your gov duties, which means it will collapse too, equalizing the system. (inflation and deflation can be too complex for me to have any useful discussion)
- weavejester 14y ago
  You say money does not have any backing, and then immediately after you say that dollars are backed with a promise from the US government. Fiat money is backed by the faith in a countries economy and government. A dollar is worth something to me because I can ultimately exchange it for goods or services produced in the United States. If this were not possible, for instance if the USA completely closed their borders to all foreign trade and travel, then the dollar would be worthless to anyone outside the country. You mention that a cheque needs time for the money to be transferred. So you give me a cheque for $1, I would have to wait for the dollar to be transferred from your bank account to mine. But what if I didn't cash the cheque? What if I gave that cheque to someone else as a substitute for a dollar bill? If Alice gives a cheque to Bob, then Bob can pay Carol with that cheque if Carol trusts Alice is good for the debt. Finally, regarding the dollar being accepted for paying my government duties, that's only true for countries that have the US dollar as their official currency. If the USA disappeared tomorrow, the dollars I own would be worthless; they only have worth because they're backed by the USA, much has a cheque only has worth while a particular bank account exists and has funds.
  - eduardordm 14y ago
    Interesting how the cheque situation you explained (not cashing and passing it to others) is somewhat similar to what happens to swap agreements. It's really interesting how currency can manifest itself without a regulated system. The main point of my article (I think my poor writing didn't help me convey the message) is that even when we move on to electronic money (like bitcoin) people will still not want to carry them (having their own wallets at home), they will prefer a bank or service to take care of this. I think this is great because we could start using bitcoins with systems that are already in place, I even built a small demo for Verifone PoS which integrated nicely with our current systems (I run a credit card company) Sometimes I also think that electronic money, like credit cards, could not be as democratic as paper.
    - weavejester 14y ago
      Ah, okay, so you're more talking about the value of credit? Being able to buy something in advance of having the liquid funds to cover it?

eduardordm 14y ago

As you said, once I give you a dollar bill, the transaction is over. If I give you a check it will takes days for the actual transaction to happen and the money transferred (which can possibly end up in a physical transfer of cash) Money does not depend on any kind of backing at all, for instance: the US gov has been flooding the market with dollars backed by the promise it will buy them back someday. Some countries don't even bother buying dollars anymore, they rely 100% on swap agreements. Even if the economy collapses, the dollar will still be accepted for paying your gov duties, which means it will collapse too, equalizing the system. (inflation and deflation can be too complex for me to have any useful discussion)

weavejester 14y ago
You say money does not have any backing, and then immediately after you say that dollars are backed with a promise from the US government. Fiat money is backed by the faith in a countries economy and government. A dollar is worth something to me because I can ultimately exchange it for goods or services produced in the United States. If this were not possible, for instance if the USA completely closed their borders to all foreign trade and travel, then the dollar would be worthless to anyone outside the country. You mention that a cheque needs time for the money to be transferred. So you give me a cheque for $1, I would have to wait for the dollar to be transferred from your bank account to mine. But what if I didn't cash the cheque? What if I gave that cheque to someone else as a substitute for a dollar bill? If Alice gives a cheque to Bob, then Bob can pay Carol with that cheque if Carol trusts Alice is good for the debt. Finally, regarding the dollar being accepted for paying my government duties, that's only true for countries that have the US dollar as their official currency. If the USA disappeared tomorrow, the dollars I own would be worthless; they only have worth because they're backed by the USA, much has a cheque only has worth while a particular bank account exists and has funds.
- eduardordm 14y ago
  Interesting how the cheque situation you explained (not cashing and passing it to others) is somewhat similar to what happens to swap agreements. It's really interesting how currency can manifest itself without a regulated system. The main point of my article (I think my poor writing didn't help me convey the message) is that even when we move on to electronic money (like bitcoin) people will still not want to carry them (having their own wallets at home), they will prefer a bank or service to take care of this. I think this is great because we could start using bitcoins with systems that are already in place, I even built a small demo for Verifone PoS which integrated nicely with our current systems (I run a credit card company) Sometimes I also think that electronic money, like credit cards, could not be as democratic as paper.
  - weavejester 14y ago
    Ah, okay, so you're more talking about the value of credit? Being able to buy something in advance of having the liquid funds to cover it?