A store of value is any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved.
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 as a store of value
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
The term cash is often used to indicate both currency, which is usually represented by paper money or coins in industrialized countries, and sums deposited and payable almost immediately on order.
Apart from cash, legal tender issued on the fiat of a sovereign government, examples of assets used as potential stores of value are:
- Financial assets, e.g. stocks, bonds and other fixed income investments, investment funds, private equity
- Real estate, e.g. home-ownership, rental property, or through financial securities or fractional ownership
- Commodities (especially through financial assets), such as natural gas or soybean
- Physical gold or other precious metals, such as gold coins, platinum or silver bullions
- Collectibles or artworks, e.g. gemstones, antiques, coins, paintings, wines
In addition, currency can take many alternative forms, such as cryptocurrency, livestock (e.g. some pre-colonial African currencies),labor vouchers, gift economy relationships or stored-value cards (value is recorded directly on computer chips of the cards).
While the above-mentioned assets may be inconvenient to trade daily or store, and may vary in value quite significantly, they are expected to rarely lose all value. It need not be a capital asset at all, merely have economic value that is not believed 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.
As stores of value, gold and precious metals are generally favored to industrial commodities, because of their demand and rarity in nature, which reduces the risk of devaluation associated with increased production and supply.
Cryptocurrency's role as a store of value is currently a matter of debate. The Internal Revenue Service has issued guidance on "virtual currencies" that refers to them as "a medium of exchange, a unit of account, and/or a store of value." The cryptocurrency Bitcoin is often compared by advocates to gold. In their role as a store of value, cryptocurrencies often elicit concern, due to their extreme volatility, or due to concerns about the emergence of regulation and contradictory handling by governments. Note that the Bitcoin blockchain ledger is unalterable and that Bitcoin cannot be taken from someone, except by force, known as the 'five-dollar wrench attack'.
See also
- Bretton Woods system
- Cincinnati Time Store
- Constant purchasing power accounting
- Full-reserve banking
- Great Depression
- Official gold reserves
- Value network
References
- "Store of Value". Corporate Finance Institute. Retrieved 2025-01-10.
- Mankiw, N. Gregory (2012). Essentials of Economics. Cengage Learning. p. 437. ISBN 978-1133418948. Retrieved 2 January 2017.
- Mankiw, N. Gregory (2012). Essentials of Economics. Cengage Learning. p. 437. ISBN 978-1133418948. Retrieved 2 January 2017.
- Gwartney, James; Richard Stroup; Russell Sobel; David Macpherson (2008). Economics: Private and Public Choice. Cengage Learning. p. 264. ISBN 978-0324580181. Retrieved 2 January 2017.
- Boyes, William; Michael Melvin (2011). Fundamentals of Economics. Cengage Learning. p. 295. ISBN 978-1133172994. Retrieved 3 January 2017.
- Einzig, Paul (2014). Primitive Money: In its Ethnological, Historical and Economic Aspects, Edition 2. Elsevier. p. 425. ISBN 9781483157153. Retrieved 3 January 2017.
- Currie, David A. (1981). Macro Economic Analysis. Nirali Prakashan. p. 2.14. ISBN 9380064195. Retrieved 3 January 2017.
- Gwartney, James; Richard Stroup; Russell Sobel; David Macpherson (2008). Macroeconomics: Public and Private Choice. Cengage Learning. p. 264. ISBN 978-0324580198. Retrieved 3 January 2017.
- Economic Concepts and Methods. FK Publications. 2008. p. 297. ISBN 978-8188597185. Retrieved 4 January 2017.[permanent dead link]
- Reddy, R. Jayaprakash (2004). Advanced Monitory Theory & Policies. APH Publishing. p. 50. ISBN 8176486124. Retrieved 4 January 2017.
- Currency at the Encyclopædia Britannica
- Cash at the Encyclopædia Britannica
- Money at the Encyclopædia Britannica
- Wondering how to invest in real estate? Four ways to get started at the Encyclopædia Britannica
- Gold-plated investing strategy? Shiny metal and your portfolio at the Encyclopædia Britannica
- What are commodities? at the Encyclopædia Britannica
- How to invest in art and collectibles: From pastime to portfolio at the Encyclopædia Britannica
- Investment types at the Encyclopædia Britannica
- "Store of value". Corporate Finance Institute. Retrieved August 1, 2024.
A store of value is an asset, currency, or commodity that maintains its value over a long period. An item would be considered a store of value if its value is either stable or increases over time but doesn't depreciate.
- Credit and money at the Encyclopædia Britannica
- "Mark Cuban: Bitcoin is 'more religion than solution' and won't help in 'doomsday scenarios'". CNBC. 17 December 2020.
- Davies, Gavyn (10 January 2021). "Bitcoin has ambitions for gold's role". Financial Times. Archived from the original on 2022-12-10.
- Shiller, Robert J. (15 December 2017). "What is Bitcoin Really Worth? Don't Even Ask". The New York Times.
- "As bitcoin's price plunges, skeptics say the cryptocurrency has no value. Here's one argument for why they're wrong". CNBC. 16 January 2018.
- "Internal Revenue Bulletin: 2014-16 | Internal Revenue Service".
- "Tom Lee gives the long-term bullish case for bitcoin and why it's better than gold". CNBC. 4 February 2021.
- "JPMorgan says bitcoin could rise to $146,000 long term as it competes with gold". CNBC. 5 January 2021.
- Shiller, Robert J. (15 December 2017). "What is Bitcoin Really Worth? Don't Even Ask". The New York Times.
- "Does Regulation Chill Cryptocurrency Trading?". The Regulatory Review. 31 August 2020.
- Kamau, Rufas. "How To Send And Receive Bitcoin Privately". Forbes. Retrieved 2022-11-05.
External links
- Wiens, Elmer G. (2005). "Linguistic and Commodity Exchanges". First Nations Studies.
Examines the structural differences between barter and monetary commodity exchanges and oral and written linguistic exchanges
A store of value is any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved retrieved and exchanged at a later time and be predictably useful when retrieved 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 as a store of valueVarious 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 valuePolish National Government bond 1863Commodities such as gold and other precious metals have historically been good stores of value The term cash is often used to indicate both currency which is usually represented by paper money or coins in industrialized countries and sums deposited and payable almost immediately on order Apart from cash legal tender issued on the fiat of a sovereign government examples of assets used as potential stores of value are Financial assets e g stocks bonds and other fixed income investments investment funds private equity Real estate e g home ownership rental property or through financial securities or fractional ownership Commodities especially through financial assets such as natural gas or soybean Physical gold or other precious metals such as gold coins platinum or silver bullions Collectibles or artworks e g gemstones antiques coins paintings wines In addition currency can take many alternative forms such as cryptocurrency livestock e g some pre colonial African currencies labor vouchers gift economy relationships or stored value cards value is recorded directly on computer chips of the cards While the above mentioned assets may be inconvenient to trade daily or store and may vary in value quite significantly they are expected to rarely lose all value It need not be a capital asset at all merely have economic value that is not believed 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 As stores of value gold and precious metals are generally favored to industrial commodities because of their demand and rarity in nature which reduces the risk of devaluation associated with increased production and supply Cryptocurrency s role as a store of value is currently a matter of debate The Internal Revenue Service has issued guidance on virtual currencies that refers to them as a medium of exchange a unit of account and or a store of value The cryptocurrency Bitcoin is often compared by advocates to gold In their role as a store of value cryptocurrencies often elicit concern due to their extreme volatility or due to concerns about the emergence of regulation and contradictory handling by governments Note that the Bitcoin blockchain ledger is unalterable and that Bitcoin cannot be taken from someone except by force known as the five dollar wrench attack See alsoBretton Woods system Cincinnati Time Store Constant purchasing power accounting Full reserve banking Great Depression Official gold reserves Value networkReferences Store of Value Corporate Finance Institute Retrieved 2025 01 10 Mankiw N Gregory 2012 Essentials of Economics Cengage Learning p 437 ISBN 978 1133418948 Retrieved 2 January 2017 Mankiw N Gregory 2012 Essentials of Economics Cengage Learning p 437 ISBN 978 1133418948 Retrieved 2 January 2017 Gwartney James Richard Stroup Russell Sobel David Macpherson 2008 Economics Private and Public Choice Cengage Learning p 264 ISBN 978 0324580181 Retrieved 2 January 2017 Boyes William Michael Melvin 2011 Fundamentals of Economics Cengage Learning p 295 ISBN 978 1133172994 Retrieved 3 January 2017 Einzig Paul 2014 Primitive Money In its Ethnological Historical and Economic Aspects Edition 2 Elsevier p 425 ISBN 9781483157153 Retrieved 3 January 2017 Currie David A 1981 Macro Economic Analysis Nirali Prakashan p 2 14 ISBN 9380064195 Retrieved 3 January 2017 Gwartney James Richard Stroup Russell Sobel David Macpherson 2008 Macroeconomics Public and Private Choice Cengage Learning p 264 ISBN 978 0324580198 Retrieved 3 January 2017 Economic Concepts and Methods FK Publications 2008 p 297 ISBN 978 8188597185 Retrieved 4 January 2017 permanent dead link Reddy R Jayaprakash 2004 Advanced Monitory Theory amp Policies APH Publishing p 50 ISBN 8176486124 Retrieved 4 January 2017 Currency at the Encyclopaedia Britannica Cash at the Encyclopaedia Britannica Money at the Encyclopaedia Britannica Wondering how to invest in real estate Four ways to get started at the Encyclopaedia Britannica Gold plated investing strategy Shiny metal and your portfolio at the Encyclopaedia Britannica What are commodities at the Encyclopaedia Britannica How to invest in art and collectibles From pastime to portfolio at the Encyclopaedia Britannica Investment types at the Encyclopaedia Britannica Store of value Corporate Finance Institute Retrieved August 1 2024 A store of value is an asset currency or commodity that maintains its value over a long period An item would be considered a store of value if its value is either stable or increases over time but doesn t depreciate Credit and money at the Encyclopaedia Britannica Mark Cuban Bitcoin is more religion than solution and won t help in doomsday scenarios CNBC 17 December 2020 Davies Gavyn 10 January 2021 Bitcoin has ambitions for gold s role Financial Times Archived from the original on 2022 12 10 Shiller Robert J 15 December 2017 What is Bitcoin Really Worth Don t Even Ask The New York Times As bitcoin s price plunges skeptics say the cryptocurrency has no value Here s one argument for why they re wrong CNBC 16 January 2018 Internal Revenue Bulletin 2014 16 Internal Revenue Service Tom Lee gives the long term bullish case for bitcoin and why it s better than gold CNBC 4 February 2021 JPMorgan says bitcoin could rise to 146 000 long term as it competes with gold CNBC 5 January 2021 Shiller Robert J 15 December 2017 What is Bitcoin Really Worth Don t Even Ask The New York Times Does Regulation Chill Cryptocurrency Trading The Regulatory Review 31 August 2020 Kamau Rufas How To Send And Receive Bitcoin Privately Forbes Retrieved 2022 11 05 External linksWiens Elmer G 2005 Linguistic and Commodity Exchanges First Nations Studies Examines the structural differences between barter and monetary commodity exchanges and oral and written linguistic exchanges
