Representative money or modern money is also known as Plastic Money or Electronic Money. These days, the following types of money are in use or operation:
(1) Full Bodied Money:
The money whose face value is equal to its real value is called full bodied money. All the moneys which were used under commodity standard like wool, boat, sheep, cow, goat and arrows etc., had equal monetary and non-monetary values. Again the silver coin of Rs. 1 which was used in Subcontinent before 1857 was the representative of full bodied money because the value of the metal of such rupees was also equal to Rs. 1. The same like situation was also available in case of gold coins issued under gold standard.
(2) Representative Full Bodied Money:
The money in coins or in paper-lacking its own value may be accorded as representative full bodied money, if it is backed by equal amount of gold or silver. In such case the gold or silver is accumulated by govt. and some representative of such commodities is issued for circulation. As during 1900 to 1930 US govt. issued gold certificates. Such certificates were gold guaranteed which was possessed by US treasury. By giving back a holder of such certificates could entail upon 100% gold equal to the value of certificates. It means that gold and such certificates were equally well. Like gold certificates US govt. also issued ‘Silver certificates’. Such certificates were also convertible at official price of 1.29 dollar per ounce of silver. Because of representative money the transaction cost decreased. The cost of melting the gold and silver for coins were also avoided.
(3) Credit Money or Fiat Money:
The money whose face value is more than its intrinsic value is called credit money. In other words, the money whose non-monetary value is more than its monetary value is given the name of credit or fiat money. Thus all the coins and paper currency notes which are in circulation in a country represent credit money. In addition to official currency, the cheques of commercial banks also represent credit money because the face value of cheques is far more than value of cheques as papers. The credit money – the major component of money supply of present time is decomposed into two parts:
(i) The credit money issued by govt. or central bank.
(ii) The credit money issued by commercial banks of a country.
(i) Credit Money issued by Govt. and Central Bank:
The coins which are issued by Govt. and central bank have more face value as compared with the value of metals possessed by such coins. Accordingly such coins represent credit money – as the case of one rupee, two rupees and five rupees coins in Pakistan. The coins which are not full bodied represent token coins. In addition to coins govts. and central banks also issue credit money in the form of paper currency – as the case of all currency notes from Rs. 10 to Rs. 5000 in Pakistan. The paper credit money which is guaranteed to convert into standard money is called convertible paper currency – the case of all currency notes from Rs. 10 to Rs. 5000. While the paper credit money which is not guaranteed to convert into standard money is called inconvertible paper money – as the case of one rupee, two rupee or five rupee coins in Pakistan.
This must be remembered that the coins and currency notes which are issued by govt. and central bank are known as ‘Legal Money’. The legal money whose payments and receipts can be made without any limit is called unlimited legal money ..While the legal money whose payments and receipts can be made up to a specific limit is called limited legal money.
(ii) Credit Money issued by Commercial Banks:
The money issued by govts. and central banks has a flaw that:
(a) It is inadequate to meet the rising needs of present time.
(b) It is a troublesome job to transfer when it is in huge amount.
Therefore, the need was realized to invent such a form of money which could be quickly used for transactions and it should not be bulky. Accordingly, commercial banks introduced “Cheque” as a medium of exchange. Cheques do not represent money, rather money consists of those amounts which are with the banks. Cheques are the means for transferring the money. In addition to cheques, commercial banks have introduced a variety of other monetary instruments like drafts, call deposit receipts and credit cards.
All the above discussion shows that the major part of money today consists of credit money like coins, paper currency and cheques etc. As far as the backward countries are concerned legal money still dominates. While in case of rich countries the credit money issued by commercial banks etc. has attained extra-ordinary importance. In such countries people are extensively using credit cards for the sake of transactions. The credit cards known as ‘Plastic Money’ is the latest form of money.
Due to spread of computer and advanced technology, the payment system through banks is becoming easy and easy. Accordingly, it is said that as the electronic means of payments are popularized, all the paper formalities regarding clearance of cheques will come to an end. In this connection, the most important is Electronic Money i.e. E-Money which has the following forms.
(a) Debit Cards: The debit cards are like Credit Cards. With the help of these cards, the card holders transfer the amounts from their accounts to those people of stores wherefrom they purchase the goods. As, if anybody makes the payment at some super store such is made with the help of credit card. But the same is also done with the help of debit card where the amount to be paid is debited from one’s account just by pressing a button in the electronic machine placed in the departmental store. So, many big companies like VISA and Mater Cards are issuing debit cards. Moreover, so many commercial banks have also issued Automatic Transfer Cards (ATM) to its account holders. These cards are also used as the cards of payments.
(b) Stored Value Cards: These are like credit cards and debit cards. However, they are attached with some specific amount Such cards are normally used for those small payments which are well-anticipated by the consumers. The most important of them is the Smart Card. Such card has its own computer chip which is filled with Digital cash from the bank account of the card holder. These cards are used in Australia, Canada, Colombia, Denmark, France, Italy, Singapore, Spain and U. K. However, their use is less in US.
(c) Electronic Cash (E-Cash): E-Cash is such a type of electronic money where the goods and services can be purchased through internet. Thus, the buyers who are account holders keep the record of their accounts in their personal computers. Through such computers the amounts are transferred from the buyer’s computer to the seller’s computer. These amounts are transferred from buyer’s account to the seller’s account even before the sale and purchase of goods. This system was firstly introduced by a Dutch company Diggy Cash.
(d) Electronic Cheques: The internet users make the payments of their bills through internet rather than cheques. As, if a person has to make the payment of his telephone bill, he will write down such amount to the concerned company from his personal computer through internet The company will shift such amount from the customer’s account to his own account All such will be processed through internet. This system of transaction is easy and .cheap. It will be popularized in the coming days. The cost of transferring money through this method are one-third than those of paper cheques. Although the electronic money is beneficial, it is also furnished with so many problems.