Standard of deferred payment

Standard of deferred payment

A standard of deferred payment is the accepted way, in a given market, to settle a debt. For example, while the gold standard reigned, gold or any currency convertible to gold at a fixed rate constituted such a standard. As of 2003, the US dollar and the euro are the most generally accepted standards for international settlements.

However, for certain kinds of transactions (such as for illegal goods like drugs or weapons), gold or diamonds may be preferred as the medium of exchange — there being no recourse in case of counterfeit currency being used — and there is rarely any deferral of payment: if there is, it will most likely be stated in dollars.

This is distinct from the store of value function which relates to the saving, storing, and retrieval of value, and from the unit of account function which requires fungibility so accounts in any amount can be readily settled. It is also distinct from the medium of exchange function which requires durability when used in trade, and a minimum of opportunity to cheat others — as the diamond or gold example illustrate.

When currency is stable, money can serve all four functions. When it isn't, or when complex and volatile forms of financial capital are involved, some may wish to identify a single standard of deferred payment to avoid cheating by selecting a denominator of debt that one believes to be dropping in value.

Historically, there have been many times when creditors have had to hide from debtors to avoid being paid off in near worthless currency, typically following hyper-inflation.

Time-based currency such as Ithaca Hours establishes fixed amounts of human labour as the only standard of deferred payment.

ee also

*Bretton Woods system
*Value of life


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