Medium of Exchange, Store of value, Dollar and Gold

Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value, and occasionally, a standard of deferred payment. Money is an abstraction, idea or concept, token instances of which are the physical bills or coins which are carried and traded. (source wikipedia)

Currency in economics, the term currency can refer either to a particular currency, for example the US dollar, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply. (source wikipedia)

So currency is the physical aspect of money… Money has two roles

1. Medium of exchange : If I need a car and I have 100kgs of apples. I will sell my apples and use the currency I get (could be dollar, pound, rupee) to buy the car I need. Hence to exchange one item with another one needs to convert them into the prevalent currency. This is Money as medium of exchange.
2. Store of value: Lets say instead of buying the car I keep the currency I get for rainy day. To be used when I need it. As I can use this stored value in dollars/rupee/pound to buy anything I need at a future date.

The problem with today’s money is the store of value part. For eg if the car today costs 1000 units of currency and instead of buying it today I save my 1000 units. After a year I decide to buy the car but now the car costs 1200 units. Hmmm.. so what just happen… Did the car become more expensive or the stored value of my money decrease.

Yup the stored value of my money decreased… Why… well its simple demand n supply concept… See currency is something that can be printed and most of the governments of the world print them at will… When more currency chases limited products… You have inflation which results in price increase… But in reality inflation is decrease in purchasing power of your money….

So to fight this decrease in value people invest. They invest in stocks, mutual funds, saving accounts etc…..But what they don’t understand is that most of these options are built on the foundation of the local currency. If the currency collapses so does this pyramid of financial options….And the world is very close to one such collapse…

For the past 6000 years GOLD has been the ultimate store of value….from ancient India to mayan’s in South America….Gold cannot be printed at will and it’s designed by mother nature to appeal to human greed….. My ancestors in India were very smart people… They knew that gold will always remain the store of wealth… So they made it part of the society in India… If its marriage gold, celebrations gold, religious functions gold… Gold is a mandatory part of almost all Indian social events…. No wonder India is the black hole for gold…Gold that goes in never comes out of India….Anyways gold is anti paper currency … The current rise of gold is a sign of something ominous on the horizon of the world…People are realizing that dollars are not a viable store of wealth but gold is.....Hang on and keep some of it around..

ps:-Most of this post is inspired by fofoa.blogspot.com/ .. One of the most insightful blogs on modern economics…