What are the disadvantages of representative money?

Answer 1

Representative money can pose several disadvantages, including the reliance on a backing asset, which can create instability if the asset's value fluctuates or if it becomes scarce. Additionally, it may lead to inefficiencies in transactions since it often requires trust in the institution that issues it. Furthermore, if the issuing authority mismanages the backing assets, it can result in a loss of confidence and a potential collapse of the monetary system. Lastly, representative money can be cumbersome in terms of transport and storage compared to digital currencies.