Properties of Money
What is a store of value?
What do you value? From pebbles we picked up on the beach when we were five to a lucky hat or treasured heirloom, value can vary from person to person. In finance, a store of value is best described as an asset or item, commodity, or currency that maintains its value and can be traded in the future without its value declining. Many goods have been used as stores of value over time, however, some proved to be a better store of value than others.
Read on to find out exactly how this happens.
While your mum’s home-cooked meals may hold a special place in your heart, to be considered a store of value, a good must not be perishable or easily destroyed. As you make your way through this list, you will come to understand why gold and other precious metals still maintain their status as a store of value.
In certain countries, livestock and animals may hold more worth at face value due to socio-economic factors, but a true store of value must be easy to transport and store. A portable good is easier to secure from thieves, protect against unforeseen losses and allow for greater long-distance trade. As you could imagine, achieving this with a cow over a gold bracelet is just not going to happen, as much as you may want it to.
While this term may not roll off the tongue upon first reading it, for a good to be fungible it should be interchangeable with another of equal quantity. As explained in our first chapter, without this interchangeable aspect, the ‘coincidence of wants’ problem can’t be solved. This is why gold is ranked above diamonds even though you may consider them both equal initially. Gold is identical in its appearance and quality whereas diamonds vary wildly in shape and quality.
Not unlike Twitter, for a good to be taken seriously, it needs to be able to be verified as authentic quickly and easily. Easy verification increases confidence and the likelihood of a trade being completed.
Much like a great family-run business, we put value in something that has an established track record. The longer a good has been perceived to have value, the greater its appeal as a store of value. This is the reason why it takes challenger banks and startups so long to break into the financial markets where established brands have dominated for generations.