Store of value
Topic: Money: From Barter to Digital Currency · NCERT: Class 12, Ch 3 "Money and Banking"
Meaning
Store of value is a secondary function of money: carrying wealth from today into the future. Money suits this job for three reasons. It does not spoil, it costs little to store, and it is accepted by anyone at any time. But it works only if the value of money stays fairly stable. Inflation eats into stored money. Gold, land, houses and bonds can also store value, but they are less liquid. This means they are harder to turn into other goods and are not accepted by everyone.
Example
A farmer who stores surplus rice needs space, and the rice may rot. Selling the rice and keeping the money avoids both problems. If prices double, though, the saved money buys only half as much.
Don't confuse with
- Durability: durability is only the physical ability to last. Store of value also needs a stable price level.
- Standard of deferred payment: store of value is about keeping wealth for later. Deferred payment is about settling debts later in money.
Related concepts
- Money
- Functions of money
- Medium of exchange
- Unit of account
- Purchasing power of money
- Standard of deferred payment
- Money's worth