Store of Value

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Definition of Store of Value:

Store of value is the function of money that the median of exchange (money) retains its value.

Detailed Explanation:

Imagine if lettuce were the median of exchange. It is difficult to store lettuce. Even when refrigerated, lettuce spoils within a week. Lettuce has little store of value because it could not be used in a month. You would spend your lettuce shortly after being paid!  In other words, the value of money could not be stored. Normally, money has a store of value, meaning it can be used as money for a long time. Currency normally retains its value, so an individual saving for a future purpose can be confident the value of their savings will not have significantly changed value when the money is needed. However, this is not always true. During periods of extreme inflation, such as in Germany following WWI, a currency can become almost worthless. Under these conditions, many workers will spend their earnings immediately because the currency has lost its store of value. If vendors refuse to accept currency, people will resort to other assets such as gold or silver as the favored median of exchange.  

Dig Deeper With These Free Lessons:

What is Money
Fractional Reserve Banking and the Creation of Money
Causes of Inflation
Monetary Policy - The Power of an Interest Rate

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