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A store of value is the function of an asset that can be saved,
retrieved and exchanged at a later time, and be predictably useful when
retrieved. More generally, a store of value is anything that retains purchasing
power into the future. The most common store of value in modern times has been
money, currency, or a commodity like a precious metal or financial capital. The
point of any store of value is risk management due to a stable demand for the
underlying asset. Money is one of the best stores of value because of its
liquidity, that is, it can easily be exchanged for other goods and services. An
individual's wealth is the total of all stores of value including both monetary
and nonmonetary assets.
Money as a store of value:
Various bills and coins:
Monetary economics is the branch of economics which analyses the functions of
money.
Storage of value is one of the three generally accepted functions of money. The
other functions are the medium of exchange, which is used as an intermediary to
avoid the inconveniences of the coincidence of wants, and the unit of account,
which allows the value of various goods, services, assets and liabilities to be
rendered in multiples of the same unit.
Money is well-suited to storing value because of its purchasing power. It is
also useful because of its durability. Because of its function as a store of
value, large quantities of money are hoarded. Money's usefulness as a store of
value declines if there are significant changes in the general level of prices.
So if inflation rises, purchasing power declines and a cost is placed on those
holding money. Workers who are paid in a currency which is experiencing
high-inflation will prefer to spend their income quickly instead of saving it.
When a currency loses its store of value, or more accurately when a currency is
perceived to lose its future purchasing power, it fails to function as money.
This causes people to use currencies from other countries as a substitute.
According to the Cambridge cash-balance theory, which is represented by the
Cambridge equation, money's ability to store value is more important than its
function as a medium of exchange. Cambridge claims that the demand for money is
derived from its ability to store value. This is contrary to Fisher economists'
belief that demand arises because money is needed for exchange. Other stores of
value Polish National Government bond, 1863 Commodities such as gold are good
stores of value Examples for stores of value other than money are:
Bonds - value is guaranteed by a legal contract
Collectibles, e.g. original art by a famous artist or antiques such as ancient
artifacts or ancient coinage
Gemstones
Gift economy relationships – value is stored as social reputation
Labor notes (currency)
Livestock ownership and control (see African currency)
Fine wine
Precious metals – ownership in gold, silver, platinum, and palladium
Real estate – ownership in actual deeds in protectable controllable land
Stored-value cards – value is physically stored on the cards in the form
of binary coded data
While these items may be inconvenient to trade daily or store, and may vary in
value quite significantly, they rarely lose all value. It need not be a capital
asset at all, merely have economic value that is not known to disappear even in
the worst situation. The disadvantage for land, houses and property as a store
for value is that it may take time to find a buyer for those assets. In
principle, this could be true of any industrial commodity, but gold and
precious metals are generally favored, because of their demand and rarity in
nature, which reduces the risk of devaluation associated with increased
production and supply.
Speculative investments Insofar as an investment is speculative, it should not
be considered a store of value because it lacks stability. An asset should only
be considered a store of value if it is stable against future purchasing power.
At various times throughout history, people and nations have famously made the
mistake of believing that they could "store value" in speculative
instruments, misunderstanding that ones personal choice to invest in a
speculative asset does not automatically convert that asset into a proper and
predictable store of value.
Examples of assets that are not traditionally considered stores of value:
Stocks – A share of ownership of a publicly-traded company
Cryptocurrencies – digital currencies
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