The best way to define store of value is to see assets as a way to preserve value without depreciating or losing purchasing power. A store of value is an asset, commodity, or currency accepted as valuable and retains its value under all conditions without depreciating. Anything considered a store of value is crucial to the economy. A country's best stores of value are its currency which should be protected to keep the economy flowing. Many consider gold and other precious metals with long shelf life and stable market value good stores of value, to the extent that the monetary system once depended on gold and precious metals. In this article, you'll learn the various stores of value.
What are the attributes of a good store of value?
Any good store of value should be portable for easy transportation and storage. Goods used to store value should be accepted as a mobile payment or means of exchange for facilitating trade, not just within a locality but also over long distances. What is a store of value if it loses its worth? Every good considered a store of value should be able to retain its value and be protectable against theft and other losses, either by insurance or other forms of protection. This is why a cow, for example, is less suitable than a gold or diamond bracelet.
Fungibility is the quality of being interchangeable while retaining the same quantity and quality, and overall value. What is store of value if it cannot be transferred? For example, fungibility ensures that value is transferred easily and that the problem of double coincidence of interest is resolved. This is a key reason why gold is better than diamonds and currencies are better than precious metals. Having a copy or specimen of the store of value that retains its value and worth makes it easier and safer to store value in goods.
Verifiable quality is crucial to any goods that satisfy the what is store value question. Anyone should be able to identify and verify that the store of value is authentic and must satisfy the requirement for every party to a transaction at every stage. Transactions have a higher likelihood of completion as the store of value passes successive verification. Suppose the authenticity of a store of value is settled. In that case, the parties in a transaction have higher confidence knowing that their funds are secure and protected by the regulations governing the country.
While a good store of value should be whole, it must be divisible or denominated into smaller units. Denominations of a currency, commodity, or other stores of value allow anyone to use them for trading smaller and specific quantities without problems. Denominating a currency also helps to manage inflation and protect the economy by increasing monetary circulation. A good store of value has the same denomination across areas where it is accepted, enabling pegging and exchange with other stores of value.
Rarity is another important quality for a good store of value. Rarity is a fundamental principle for central banks in charge of currencies and legal tender as it ensures monetary control. A good store of value must not be abundantly available or easy to obtain, especially in large quantities. Only an equivalent worth of products and services should be exchanged for the store of value. Gold, currencies, and other stores of value are not generally abundantly available and must be obtained through an exchange of value.
Censorship is an important feature of governments and financial authorities but a burden, especially in modern digital transactions. Censorship refers to the action of a third party, such as a government or business, to prevent owners of assets from keeping or accessing them. Today's good store of value should be censorship-resistant, allowing owners to keep or transact their assets without third-party interference and control. This is crucial to those living in regimes with strict capital control.
Examples of storage of valuables
Cryptocurrencies are digital assets created, deployed, and maintained on blockchains. They have developed from being tokens for maintaining blockchain ecosystems to having financial value and becoming a monetary system. Cryptocurrencies such as Bitcoin and Ethereum are good stores of value examples due to their features such as scarcity, decentralization, digital security, and denomination. Anyone can earn cryptocurrencies byBitcoin server hosting or other methods. Cryptocurrencies are great for transferring value, especially in a way that bypasses censorship.
Precious metals such as gold and silver are another example of store of value. Precious metals have a long history in trading and storing value. Man has used gold, silver, and other precious metals for exchanging and holding value. They are useful for storing value because of their relative ease of transport, divisibility, and resistance to inflation. Precious metals are so important that the Gold Standard was the old financial system where gold was exchangeable with dollars. Today, precious metals are kept to preserve value, especially during inflation.
Fiat currencies are the official legal tenders that countries recognize and accept. A country's currency is accepted for payment, trading, storage, saving, and all types of transactions. Stability and fungibility are important to the use of any currency and the economy's stability. Currencies are great examples of store of value and perhaps are best for showing the effects of poor performance. Poor-performing currencies destroy a country's economy and saving incentives, eventually making trading difficult.
Commercial real estate (CRE) is a popular store of value that's both tangible and practical. The value of CRE remains stable or even increases, especially during inflation, and that's why many consider them a great store of value. Real estate assets include land and buildings whose value increases with development. Although real estate is relatively safe, there are associated risks, such as the failure of real estate-based derivatives and unexpected downturns. Indivisibility, high costs, and relatively low liquidity are other concerns.
Artworks, coins, cars, stamps, and even watches are rare collectibles used to store value. Although they are not used widely and have a limited sphere of use, rare collectibles have a long history. The key factors are rarity and desirability to generate sufficient demand. The value of these rare collectibles depends on the purchaser's desire based on the piece's craftsmanship, emotions, and uniqueness. Rare collectibles generally have low liquidity, and market sentiments may influence their value.
It is often necessary to preserve financial value, especially during inflation. There are many instruments for preserving wealth from inflation and storing value over the years. If you are considering doing that, your priority is choosing the instrument that best preserves value, is most resistant to inflation, and has stable liquidity so you can convert value at any time. The good news is that you don't have to be limited to traditional stores of value; you can explore other methods, especially as many countries are facing recession and volatile economic conditions.