Store of value

A store of value is any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. 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. 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 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. 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.