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Representative money

Representative money Definition

Representative money refers to money that consists of a token or certificate that can be exchanged for a fixed quantity of a commodity such as gold, silver or potentially water, oil or food. This is to be distinguished from commodity money which is actually made of that real physical commodity.

Representative money is widely believed to have originated in ancient Sumeria where small baked clay tokens in the shape of sheep or goats were used to replace barter in trade. Over time, they were sealed in clay vessels which contained a certain number and had that number written on the outside - but it was only possible to verify the number of tokens inside by shaking the vessel and guessing, or by breaking it. At which point, the number written on the outside originally became subject to doubt. Apparently, however, this system was good enough to have discouraged much counterfeiting - penalties for "short-sheeping" or selling the same goat twice were quite severe, and often such activities in ancient societies were thought to offend one or more gods.

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