People accept money as a medium of exchange in trade for goods, services, and other currencies. Therefore, a Store of Value retains its utility even if it is not used.
An asset can store wealth, which also ensures that the asset will continue to have some value in the future. As a result, it has been used as a basis for most currencies in history, from Rome to China, to Europe.
This blog will inform you about the concept of a Store of Value and why it is crucial. In addition, it will look at the history of it and how it can be applied to today’s society. So, without any delays, let us dive together and have a better understanding of this concept.
What is a Store of Value?
A store of value can be an asset, currency, or commodity that maintains value without depreciating it. For example, an investment can be saved, retrieved, and exchanged later for goods or services.
An asset can retain its value over time without losing purchasing power. Fiat currency is the most common form of a store of value, as users can exchange it for goods and services relatively easily.
However, other stores of value, such as gold, silver, cryptocurrencies, stocks, bonds, and real estate, have been gaining popularity in the past few times.
Any items that can be held and converted into money in the future without losing their actual value is termed a Store of Value. Gold and other precious metals are coming under the store of value.
However, investors can also go with US Treasury bonds because they retain their value while generating income. On the other hand, Milk is a poor store of value because it will become worthless and decay its importance in the future.
Key Points
- A Store of Value keeps the value of assets without deterioration.
- Gold is considered one of the most secure goods stores of value without losing its value in an economic crisis. It is always in huge demand and can be converted easily.
- The nation’s currency can be a good SOV for smooth functioning.
Money as the store of value
Money is a widely accepted currency that always holds its value over time. People are earning money, spending it, and saving it for future use because the value has been stored over time.
The agents widely use commodities such as gold as their medium of exchange because of their intrinsic values, durability, and portability.
Money has been used as an SOV for decades. It allows people to save and invest capital to achieve desired financial security. Money is also a medium of exchange, which users can use to purchase goods and services anytime, hassle-free.
Money is valuable because users can exchange it for other goods and services, and its value does not depreciate or reduce over time. It makes an ideal store of value as its purchasing power remains constant over time.
Money is also highly liquid, which can be quickly converted into cash or other assets when needed.
Money has become even more important recently due to the rise of digital assets such as Bitcoin, which are becoming increasingly popular as stores of value due to their decentralized nature and potential for high ROI. As such, money will play a vital role in the global economy for years.
Examples of Store of Value-
Precious Metals
Earlier, precious metals were used to facilitate all the trade around the country. This precious metal includes gold, silver, and platinum, which were the stores of value because of their portability and divisibility features.
Until 1993, the US was a gold standard country, which used gold for all the reserves. But the end of the Gold Standard dispenses more power to the Federal Reserve to influence certain factors such as Inflation and unemployment rate. Afterward, the US implemented fiat currency as legal tender, backed by the government, not the community.
Currency
We all know about the currency; it is a legal tender by the government, mainly a standard point of debt repayment. A robust currency is vital for the well-being of any economy. This tender will help to facilitate all the expenditure, trade, and savings.
Cryptocurrency
The experts are also considering Cryptocurrency as a good store of value. Again, the decentralized security, scarcity, and divisibility make Cryptocurrency a good value store.
Cryptocurrency as a store of value
There are numerous reasons why Cryptocurrency is an effective store of value option.
Limited Supply
The cryptocurrency revolution started with Bitcoin, a new way to make payments. Today, it is one of the most reliable stores of value. The reason is that only 21 million Bitcoin came into circulation, which enhances the scarcity of Bitcoin above some other stores of value. That’s why Bitcoin’s market cap has beaten almost all the major companies.
Easy Divisibility
Cryptocurrency has become an increasingly popular payment option due to its easy divisibility. Cryptocurrency can be divided into smaller denominations, making it convenient to use and more accessible to people who may not have access to traditional forms of payment.
This makes it a more attractive option for those looking to make payments in small amounts or those who are looking for an alternative form of payment. For example- A dollar can be divided into 100 cents, but a Bitcoin can be divided into millions of Satoshis.
True Ownership
Cryptocurrencies are based on a decentralized system, which means that you are the only owner of the crypto assets you have. No one can affect you except the market. As a result, even people accept these currencies, and users can convert their coins into something other than money.
Even experts have predicted that Blockchain technology will be the future of real estate.
Conclusion
The Store of Value is an essential factor in economics and finance. An asset can retain its purchasing power over time. So, yes, it is a critical factor in determining whether an asset can come in use as a medium of exchange, a unit of account, or a store of value.
Silver, Gold, Stocks, Bonds, and real estate will remain popular investments. But in the future, we may see crypto being leveraged more, and people use this medium to safeguard their earnings.
FAQs
Q. What makes Money a store of value?
Ans. Money is valuable because users can exchange it for goods and services. It is a reliable measure of value that can come in use to compare the cost of any item. Money also has intrinsic value, which can be used to purchase assets such as land or stocks without losing value.
Q. Why is a store of value critical?
Ans. A store of value is an asset that can be saved, retrieved, and exchanged later and whose value does not depreciate significantly over time. It is an essential concept in economics because it allows individuals to transfer their wealth from one period to another without worrying about fluctuations rising in the market.
Q. Is Bitcoin a store of value?
Ans. Yes, Bitcoin can be said as a store of value because it’s a finished product. However, Bitcoin is working for technological achievements, and that’s why it has value for different reasons.
Q. Is Money the only store of value?
Ans. No, Money is not the only store of value. It is just one of many forms of value that people can use to store wealth and exchange goods and services. Some other forms of value include land, art, stocks, bonds, commodities, and other assets.
