Reserve Definition

A reserve is the capital a person possesses. It is present capital, as opposed to invested capital. Present capital depreciates and as such represents an ongoing cost to its owner. The ratio of reserved to invested capital is a reflection of the owner’s time preference.

Reserve capital intended for the settlement of debts is the settlement medium. For example, where gold is the settlement medium, gold is the reserve capital. A promise for gold, such as a gold certificate, is a loan and therefore not a reserve against the debt. If the debt can be settled with gold certificates, then possession of the certificates constitutes reserve.