Store of Value, Unit of Account, and Medium of Exchange

# The Evolving Functions of Money: Luke Gromen’s Perspective on Store of Value, Unit of Account, and Medium of Exchange

In the realm of macroeconomics and global finance, few concepts are as foundational as the three primary functions of money: Store of Value (SoV), Unit of Account (UoA), and Medium of Exchange (MoE). These pillars, first articulated by economists like Aristotle and later refined in modern monetary theory, define how assets facilitate trade, measure worth, and preserve wealth over time. Luke Gromen, a prominent macro analyst and founder of Forest for the Trees (FFTT), has extensively discussed these functions in the context of shifting global dynamics, particularly the decoupling of the U.S. Dollar (USD) from its hegemonic role and the resurgence of gold. Gromen’s analysis, drawn from geopolitical tensions, resource constraints, and historical precedents, posits a fundamental separation of these functions as a response to unsustainable fiscal policies and international mistrust. This essay explores Gromen’s views on SoV, UoA, and MoE, emphasizing how gold is emerging as the dominant SoV while fiat currencies retain their roles in day-to-day transactions and accounting, ultimately reshaping the international monetary order.

At the core of Gromen’s thesis is the idea that money’s functions are not inherently fused but can—and increasingly must—be separated due to economic and geopolitical pressures. Traditionally, sound money performs all three roles effectively: it holds value over time (SoV), serves as a standard for pricing goods and services (UoA), and enables seamless transactions (MoE). However, Gromen argues that in the current era, marked by peak cheap energy, ballooning sovereign debts, and weaponized finance, this integration is breaking down. He points to historical failures of monetary systems, such as those in Rome, the UK, and the US, where gold or silver collapsed under the strain of combined roles.

In those cases, Gromen notes, the SoV was never fully decoupled from MoE and UoA, and currencies were often fixed to fiat rather than floating against energy benchmarks. Today, he sees a deliberate pivot: “Save in gold, spend & account in currency.”

This separation, driven by necessity, allows nations to mitigate currency crises while preserving wealth in a hard asset like gold, which is fixed in energy terms rather than fiat volatility.

Gromen’s emphasis on gold as the preeminent SoV stems from its historical reliability and current geopolitical utility. In his view, gold’s resurgence is not mere speculation but a strategic response to the erosion of trust in fiat reserves, particularly USD-denominated assets like U.S. Treasury securities (USTs). He highlights two key catalysts for this shift. First, China’s economic imperatives: to avoid a 1997-style Asian currency crisis amid its massive $37 trillion balance sheet, China has leveraged gold to import commodities in yuan (CNY) rather than solely in USD.

The People’s Bank of China (PBOC) formalized this in 2015, enabling marginal imports in CNY while using gold as a backstop, a move Gromen laments was ignored in the West alongside initiatives like “Made in China 2025.” Second, the 2022 seizure of Russian foreign exchange reserves underscored the risks of holding USTs, reinforcing a “might makes right” paradigm in U.S. policy.

As a result, central banks are accelerating gold purchases, pushing its share of global reserves to 26% (versus USTs at 46% when including gold), with Gromen predicting gold will surpass USD reserves within 18 months if trends continue.

For Gromen, gold’s SoV function is thus “defeating” long-term USTs, as evidenced by ratios like GLD/TLT, signaling a diversification away from USD hegemony without fully abandoning its liquidity for transactions.

In contrast, Gromen views fiat currencies like the USD and CNY as retaining their dominance in MoE and UoA roles, even as their SoV credibility wanes. The MoE function requires liquidity, low transaction costs, and widespread acceptance—qualities fiat excels at in domestic and short-term international contexts. Similarly, UoA demands stability for pricing and accounting, which currencies provide through central bank management, albeit with inflation risks. Gromen’s analysis of China illustrates this bifurcation vividly: since 2012, Beijing has promoted gold accumulation accounts, fully reserved with physical gold, allowing citizens to save in a devaluation-resistant asset while transacting in CNY. This policy shielded savers from CNY depreciation against the USD, as gold outperformed fiat alternatives. For the U.S., Gromen suggests a similar trajectory, where deliberate USD weakening supports reshoring and balance sheet recapitalization via gold revaluation, drawing parallels to historical gold buyers averting fiscal collapse. Yet, he warns that without separating SoV from MoE/UoA, systems risk implosion, as seen in past empires. The USD’s vulnerability lies not in outright defeat but in its demotion from universal SoV, with gold hedging against debasement while fiat handles everyday exchange and accounting.

This separation, per Gromen, is not just theoretical but a pragmatic adaptation to “demographics as destiny” and the “biggest Ponzi scheme in history”—Western sovereign debt funding entitlements.

He critiques regulatory frameworks that treat such debt as “risk-free collateral,” fueling a “Golden Age of Grift” where policymakers inflate the Ponzi to avoid collapse

In this environment, gold’s SoV role becomes a bulwark against austerity, enabling indirect fiscal discipline without revolution, as one observer noted in response to his work. Globally, this manifests in de-dollarization efforts, such as China’s Belt and Road Initiative (BRI) pushing yuan internationalization through debt strategies, though Gromen sees it as gradual rather than confrontational.

The outcome? A multipolar monetary system where gold anchors value, fiat facilitates flow, and nations navigate resource scarcity—particularly rare earths controlled by China—without systemic meltdown.

In conclusion, Luke Gromen’s insights on SoV, UoA, and MoE reveal a world in transition, where gold reclaims its throne as the ultimate preserver of wealth amid fiat’s limitations. By advocating for their separation, Gromen provides a roadmap for investors and policymakers to weather USD weakness, geopolitical risks, and energy constraints. His analysis, rooted in macro realities rather than ideology, underscores that while fiat may endure as MoE and UoA, gold’s SoV primacy is inevitable, echoing historical cycles but adapted for a modern, interconnected globe. As global reserves tilt toward gold, Gromen’s framework offers a sobering yet opportunistic lens on the future of money.