Store of Value
A store of value is an asset that keeps its purchasing power in a reasonably predictable way over time, so that wealth earned today can be spent later. It is one of the three classic functions of money, and many assets do it better than money.
Also called: store of wealth · value storage
The test is predictability. The Bank of England's illustration is that gold or silver mined centuries ago is still valuable, while perishable food quickly becomes worthless. Houses, government bonds and gold all hold value over long periods, but most of them cannot be handed across a counter as payment, which is why being a good store of value does not by itself make something money.
Money has to be a reasonable store of value to work as a medium of exchange, because nobody wants to accept something that will buy less tomorrow. When a currency fails at this, as in hyperinflation, people move into foreign currency, goods or anything else that holds its worth. The Bank of England notes that German prices doubled 38 times in the five years after the First World War, and that some Germans began using other currencies to trade.
The phrase is used loosely in crypto, where bitcoin is often described as a store of value. Volatility is the test that matters to a business: an asset whose price can halve within a year may still be a reasonable long-term investment, but it stores value poorly over the weeks or months a treasury plans for. For payment firms the practical question is where operating and customer balances sit, and a bank deposit, a money market fund and a Treasury bill each carry a different mix of credit, liquidity and price risk.
In practice
No asset stores value without risk. Cash loses to inflation, bonds to rising interest rates, gold to price swings and deposits to the bank's own credit. The choice is which risk to carry.
Example
Holding 100 units of a currency through a year of 40 percent inflation leaves about 71 units of today's purchasing power (100 divided by 1.4).
Learn more on Money Wiki
This page gives the short answer. Money Wiki has a longer guide to Store of Value, with more detail and background.
Commonly confused with
| Term | How it differs |
|---|---|
| Medium of exchange | A store of value holds purchasing power over time. A medium of exchange is accepted in payment. A house is the first but not the second. |
See also
- Unit of AccountA unit of account is the measure in which prices, debts and accounts are expressed: the pound or the dollar today, a weight of silver or a measure of barley in the ancient world. It is one of the three classic functions of money.
- Medium of ExchangeA medium of exchange is anything widely accepted in payment for goods and services, held not for its own use but because it can be passed on to someone else. It is the function most people mean by money, and the one that ends the need for barter.
- HyperinflationHyperinflation is an extremely rapid and accelerating rise in prices, conventionally defined as inflation above 50 percent a month. Money loses value so fast that people stop holding it and switch to goods or foreign currency.
- Monetary GoldMonetary gold is gold that a country's monetary authority owns and holds as a reserve asset. In IMF statistics it covers gold bullion, including allocated gold accounts, and unallocated gold accounts with non-residents that give a claim to delivery of gold.
- DollarizationDollarization is the use of a foreign currency, usually the US dollar, in place of or alongside a country's own for saving, pricing and payment. It can be official policy or something households and firms do on their own.