What is a 'Store Of Value'
A store of value is any form of wealth that maintains its value without depreciating. Commodities such as gold and other forms of metal are good stores of value, as their shelf lives are essentially perpetual, whereas a good such as milk is a terrible store of value due to its natural process of spoilage. Interest-bearing assets, such as U.S. Treasury bonds, are very good stores of value, because they generate an income of their own and their principal value is backed by a legal contract.
BREAKING DOWN 'Store Of Value'Wealth preservation is a key component of a healthy economy, especially in the formation of a currency or monetary unit. Money is relied upon to preserve the economic value of an individual or business's accumulated labor, as well as to facilitate exchange. A monetary unit that serves poorly as a store of value compromises an economy's savings and reduces its willingness to trade. Thus, a credible currency must be established for people to engage in labor and trade.
Many economies throughout history have used gold, silver and other metals as currencies because of their ability to store value, their relative ease of transport and the ease of forming them into different denominations. The United States was on a gold standard, in which dollars were redeemable for a specific weight of gold, until 1971, when President Richard Nixon ended dollar convertibility to give the Federal Reserve greater power to influence rates of employment and inflation, among other reasons. Since 1971, the United States has used a fiat currency, which a government declares as legal tender but is not tied to a physical commodity.
Other Stores of Value
What is considered a store of value can be markedly different from one region of the world to another. Any physical asset can be considered a store of value under the right circumstances or when a base level of demand is believed to exist.
In most of the world's advanced economies, the local currency can be counted on as a store of value in all but the worst-case scenarios. Stable currencies such as the U.S. dollar, the Japanese yen, the Swiss franc and the Singaporean dollar enhance their home economies greatly. However, currency can sometimes come under attack as a store of value when hyperinflation occurs.
In those instances, other stores of value have proved their consistency over time, such as gold, silver, real estate and art. The price of gold, in particular, will often skyrocket during times of national peril or when a financial shock hits the broad markets, as demand grows for other widely recognized stores of value. While the relative value of these items will fluctuate over time, they can be counted on to retain some value in almost any scenario, especially in those cases where the store of value has a finite supply (like gold).