Understanding Cash as a Store of Value

Given how much cash is issued but held as a store of value, a paper entitled ‘Cash Money as a Saving Mode’ from Tampere University in Finland is useful and interesting. ¹

If one goes back to basics, starting with the classical quantity theory of money, the price level in the economy depends directly on the amount of active money in the circulation. The velocity of money moving around the economy is driven by economic activity. The theory does not deal with the inactive nature of money, although concepts such as precautionary savings and cash used as a means of savings are long-established.

Economists have understood that holding cash is useful to the owner in exactly the same way as if the cash was being used to buy goods or services. Just like any product, the benefit of holding cash has a diminishing marginal usefulness and it can also have positive cross-over effects.