Store of Value

Definition

A store of value is an asset that can be saved, retrieved, and exchanged at a later time without losing its purchasing power. It serves as a way to preserve wealth and maintain its value over time, even in the face of inflation or economic fluctuations.

5 Must Know Facts For Your Next Test

1. A store of value must be durable, portable, divisible, and have a stable value over time.
2. Gold, silver, real estate, and certain cryptocurrencies are often considered stores of value due to their ability to maintain purchasing power.
3. Fiat currencies, such as the US dollar, can also serve as a store of value, but their value is more susceptible to inflation and economic factors.
4. Storing wealth in a store of value can protect against the erosion of purchasing power caused by inflation.
5. The demand for a store of value increases during times of economic uncertainty or instability, as people seek to preserve their wealth.

Review Questions

• Explain how a store of value differs from a medium of exchange and a unit of account.
  • A store of value is an asset that can be saved and exchanged at a later time without losing its purchasing power, whereas a medium of exchange is an intermediary used to facilitate the exchange of goods and services, and a unit of account is a standard unit used to measure and account for economic value. While a store of value can also serve as a medium of exchange and a unit of account, the primary function of a store of value is to preserve wealth over time, even in the face of inflation or economic fluctuations.
• Describe the characteristics that make an asset a suitable store of value.
  • For an asset to be considered a suitable store of value, it must possess certain characteristics, such as durability, portability, divisibility, and a stable value over time. Assets like gold, silver, real estate, and certain cryptocurrencies often meet these criteria, as they can be easily stored, transported, and divided, while also maintaining their purchasing power despite economic changes. In contrast, fiat currencies can serve as a store of value, but their value is more susceptible to inflation and other economic factors.
• Analyze the role of a store of value in protecting wealth during times of economic uncertainty or instability.
  • During periods of economic uncertainty or instability, the demand for a store of value increases as people seek to preserve their wealth and purchasing power. By holding assets that can maintain their value over time, individuals can protect their savings from the erosion caused by inflation or other economic factors. This is particularly important in situations where the stability of fiat currencies or other financial instruments is called into question. The ability to store wealth in durable, portable, and divisible assets, such as gold, silver, or certain cryptocurrencies, can provide a safeguard against the risks associated with economic volatility.

Related terms

Medium of Exchange:

A medium of exchange is an intermediary used in trade to facilitate the exchange of goods and services. It is a generally accepted means of payment.

Unit of Account:

A unit of account is a standard unit used to measure and account for economic value. It provides a common way to price and record transactions.

Fiat Currency: Fiat currency is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.