Store of value

A store of value is any asset that can be saved, retrieved, and exchanged at a later time without depreciating in real terms. In economic theory, money serves as a store of value because it can be held and used for future purchases, but inflation erodes its purchasing power over time. The concept is central to the function of money, as distinguished by economists such as William Stanley Jevons and later formalized in textbooks. Assets like gold, real estate, and durable art are also considered stores of value because they tend to retain or increase in value relative to inflation.

Money is the most liquid store of value, but its effectiveness depends on monetary stability. Fiat currencies, which are not backed by physical commodities, rely on the trust in the issuing government and central bank to maintain value. Historically, commodity money like gold coins had intrinsic value, but modern fiat money is subject to inflation, which reduces its real value over time.¹ Central banks aim to maintain price stability, typically targeting an inflation rate of around 2% per year, to preserve money's function as a store of value.

Beyond money, various assets serve as stores of value. Gold has been used for millennia as a hedge against inflation and currency devaluation. Real estate often appreciates in value and provides rental income, making it a popular long-term store. Fine art, rare collectibles, and even certain financial instruments like inflation-indexed bonds are also considered stores of value. However, these assets may be illiquid and subject to market volatility, unlike money.

The concept of a store of value has evolved with economic systems. In ancient societies, livestock and grain served as stores of value. The use of precious metals as money dates back to around 600 BCE in Lydia, where electrum coins were minted. The gold standard, which pegged currencies to gold, was widely adopted in the 19th century and provided a stable store of value until the 20th century. The Bretton Woods system (1944–1971) linked major currencies to the U.S. dollar, which was convertible to gold, but this ended with the Nixon shock in 1971, leading to the current fiat system.²

While gold and real estate are well-known, other assets have served as stores of value in niche contexts. For example, during hyperinflation in Germany in the 1920s, people used coal and other commodities as stores of value. In some cultures, cattle are still considered a store of value. Cryptocurrencies like Bitcoin have been proposed as digital stores of value, but their volatility has been a point of debate. Additionally, the concept of 'negative real interest rates' can undermine money's store-of-value function, as seen in recent years in some economies.

Fiat money

Currency without intrinsic value, established as money by government decree.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

Hedge

An investment made to reduce the risk of adverse price movements in an asset.