Store of value

File:Currency, Money,before Euro.jpg

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.{{cite book |title=Essentials of Economics |last=Mankiw |first=N. Gregory |year=2012 |publisher=Cengage Learning |isbn=978-1133418948 |page=437 |url=https://books.google.com/books?id=sSY9AAAAQBAJ |accessdate=2 January 2017}} 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.{{cite book |title=Economics: Private and Public Choice |last=Gwartney |first=James |author2=Richard Stroup |author3=Russell Sobel |author4=David Macpherson |year=2008 |publisher=Cengage Learning |isbn=978-0324580181 |page=264 |url=https://books.google.com/books?id=yIbH4R77OtMC |accessdate=2 January 2017}} It is also useful because of its durability.{{cite book |title=Fundamentals of Economics |last=Boyes |first=William |author2=Michael Melvin |year=2011 |publisher=Cengage Learning |isbn=978-1133172994 |page=295 |url=https://books.google.com/books?id=qe08AAAAQBAJ |accessdate=3 January 2017}}

Because of its function as a store of value, large quantities of money are hoarded.{{cite book |title=Primitive Money: In its Ethnological, Historical and Economic Aspects, Edition 2 |last=Einzig |first=Paul |year=2014 |publisher=Elsevier |isbn=9781483157153 |page=425 |url=https://play.google.com/store/books/details?id=RhejBQAAQBAJ |accessdate=3 January 2017}} Money's usefulness as a store of value declines if there are significant changes in the general level of prices.{{cite book |title=Macro Economic Analysis |last=Currie |first=David A. |year=1981 |publisher=Nirali Prakashan |isbn=9380064195 |page=2.14 |url=https://books.google.com/books?id=01G0yTCZpB4C |accessdate=3 January 2017}} So if inflation rises, purchasing power declines and a cost is placed on those holding money.{{cite book |title=Macroeconomics: Public and Private Choice |last=Gwartney |first=James |author2=Richard Stroup |author3=Russell Sobel |author4=David Macpherson |year=2008 |publisher=Cengage Learning |isbn=978-0324580198 |page=264 |url=https://books.google.com/books?id=Byk5B7BJkr4C |accessdate=3 January 2017}}

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.{{cite book |title=Economic Concepts and Methods |date=2008 |publisher=FK Publications |isbn=978-8188597185 |page=297 |url=https://books.google.com/books?id=DyrqBToCDgQC |accessdate=4 January 2017 }}{{Dead link|date=May 2024 |bot=InternetArchiveBot |fix-attempted=yes }} 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.{{cite book |title=Advanced Monitory Theory & Policies |last=Reddy |first=R. Jayaprakash |year=2004 |publisher=APH Publishing |isbn=8176486124 |page=50 |url=https://books.google.com/books?id=qem_6XaNkF4C |accessdate=4 January 2017}}

While most money can be hoarded, demurrage money is a type of money which is deliberately designed to not be used as a store of value.

File:Bond of National Loan issued by Polish National Government 1863.png

File:Gold-295936.jpg 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,{{Britannica URL|money/cash-money|Cash}}{{Britannica URL|money/money|Money}} 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{{Britannica URL|money/real-estate-investing|Wondering how to invest in real estate? Four ways to get started}}
• Commodities (especially through financial assets), such as natural gas or soybean{{Britannica URL|money/investing-in-gold|Gold-plated investing strategy? Shiny metal and your portfolio}}
• Physical gold or other precious metals, such as gold coins, platinum or silver bullions{{Britannica URL|money/what-are-commodities|What are commodities?}}
• Collectibles or artworks, e.g. gemstones, antiques, coins, paintings, wines{{Britannica URL|money/how-to-invest-in-collectibles|How to invest in art and collectibles: From pastime to portfolio}}{{Britannica URL|money/investment-types|Investment types}}{{cite web|url=https://corporatefinanceinstitute.com/resources/valuation/store-of-value/|title=Store of value|publisher=Corporate Finance Institute|access-date=August 1, 2024|quote=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.}}

In addition, currency can take many alternative forms, such as cryptocurrency, livestock (e.g. some pre-colonial African currencies),{{Britannica URL|money/currency|Currency}} labor vouchers, gift economy relationships or stored-value cards (value is recorded directly on computer chips of the cards).{{Britannica URL|money/Credit-and-money|Credit and money}}

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.{{Cite web|url=https://www.cnbc.com/2020/12/17/mark-cuban-bitcoin-is-a-store-of-value-that-is-more-religion.html|title=Mark Cuban: Bitcoin is 'more religion than solution' and won't help in 'doomsday scenarios'|publisher=CNBC|date=17 December 2020}}{{Cite news|url=https://www.ft.com/content/625fbd5a-d90c-434f-998d-5e0eeb4c0f71 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/625fbd5a-d90c-434f-998d-5e0eeb4c0f71 |archive-date=2022-12-10 |url-access=subscription|title=Bitcoin has ambitions for gold's role|newspaper=Financial Times|date=10 January 2021|last1=Davies|first1=Gavyn}}{{Cite news|url=https://www.nytimes.com/2017/12/15/business/bitcoin-investing.html|title=What is Bitcoin Really Worth? Don't Even Ask|newspaper=The New York Times|date=15 December 2017|last1=Shiller|first1=Robert J.}}{{Cite web|url=https://www.cnbc.com/2018/01/16/skeptics-say-bitcoin-has-no-value-heres-why-theyre-wrong.html|title=As bitcoin's price plunges, skeptics say the cryptocurrency has no value. Here's one argument for why they're wrong|publisher=CNBC|date=16 January 2018}} 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."{{Cite web|url=https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21|title=Internal Revenue Bulletin: 2014-16 | Internal Revenue Service}} The cryptocurrency Bitcoin is often compared by advocates to gold.{{Cite web|url=https://www.cnbc.com/2021/02/04/tom-lee-on-bitcoins-price-and-why-its-better-than-gold.html|title=Tom Lee gives the long-term bullish case for bitcoin and why it's better than gold|publisher=CNBC|date=4 February 2021}}{{Cite web|url=https://www.cnbc.com/2021/01/05/jpmorgan-bitcoin-price-could-rise-to-146k-as-it-competes-with-gold.html|title=JPMorgan says bitcoin could rise to $146,000 long term as it competes with gold|publisher=CNBC|date=5 January 2021}} In their role as a store of value, cryptocurrencies often elicit concern, due to their extreme volatility,{{Cite news|url=https://www.nytimes.com/2017/12/15/business/bitcoin-investing.html|title=What is Bitcoin Really Worth? Don't Even Ask|newspaper=The New York Times|date=15 December 2017|last1=Shiller|first1=Robert J.}} or due to concerns about the emergence of regulation and contradictory handling by governments.{{Cite web|url=https://www.theregreview.org/2020/08/31/feinstein-werbach-does-regulation-chill-cryptocurrency-trading/|title=Does Regulation Chill Cryptocurrency Trading? |work=The Regulatory Review|date=31 August 2020}} 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'.{{Cite web |last=Kamau |first=Rufas |title=How To Send And Receive Bitcoin Privately |url=https://www.forbes.com/sites/rufaskamau/2022/10/24/how-to-send--and-receive-bitcoin-privately/ |access-date=2022-11-05 |website=Forbes |language=en}}

{{columns-list|colwidth=30em|

• Bretton Woods system
• Cincinnati Time Store
• Constant purchasing power accounting
• Full-reserve banking
• Great Depression
• Official gold reserves
• Value network}}

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• {{cite web |url= http://www.egwald.ca/ubcstudent/aboriginal/exchanges.php |work= First Nations Studies |title= Linguistic and Commodity Exchanges |first= Elmer G. |last= Wiens |date= 2005 |quote= Examines the structural differences between barter and monetary commodity exchanges and oral and written linguistic exchanges }}

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{{Means of Exchange}}

Category:Currency

Category:Valuation (finance)