Store of value

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.

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 loose its future purchasing power it fails to function as money. This causes people to use currencies from other countries as a substitute.

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