How Can You Define The Term Of Paper Money?

The term paper money refers to the notes issued by the state or by a bank, usually the central bank. The use of paper money has become very wide due to its many conveniences as a medium of exchange. Paper currency may be representative, convertible or fiat.

Representative paper money:
Representative paper money is that money which is fully backed by equivalent metallic reserves. The holder of the bank note can easily get it converted into the metallic money on demand.

Convertible paper money:
Paper money which is convertible into coins on demand is called convertible paper money. The state or the public authority which issues convertible paper currency does not keep an equal value of metallic reserves behind it because she knows it that all the notes are not generally presented for conversion at the same time.

Fiat paper money:
Fiat paper money is that which is not redeemable or convertible into gold or silver on demand. It is accepted because it has been declared legal tender by the issuing authority and has general acceptance as a medium of exchange. The intrinsic of faint money is nil.
Paper money is so popular and now in every country the use of paper money is more than coin money.