Standard of deferred payment

From Academic Kids

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 or Euro are the most generally accepted standards for international settlements.

While for certain kinds of transactions (such as for illegal goods like narcotics or weapons) gold or diamonds may be preferred as the medium of exchange, there being no recourse in case of counterfeit currency being used, there is rarely any deferral of payment, and 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 makes obvious.

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, it becomes important to identify a single standard of deferred payment to avoid cheating by selecting a denominator of debt that one knows is 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.

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

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