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What are Paper Assets?

2016-12-08T14:53:03+00:00

The term 'Paper Assets' is included in the Accounting edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Paper assets have three different meanings depending on whether you are discussing business, investments, or fiat currencies. Where business is concerned, paper assets are assets that you can not easily use or change in to cash. These paper assets possess extremely low liquidity, meaning that they are difficult to sell too. The term in this case literally arises from assets that are valuable on paper, or that have a paper only value.

In investments, paper assets mean something entirely different. They refer to assets that are representations of something. Paper assets in investments literally are pieces of paper that define ownership of an asset. Classic examples of investing paper assets prove to be stocks, currencies, bonds, money market accounts, and similar types of investments. For paper assets to have a tangible value, there must be a working financial system in order to back them up and exchange them. In the cases where a financial system collapses, paper assets commonly sharply decline along with it. The majority of Americans have placed an overwhelming percentage of their money in paper assets, and as the Financial Crisis of 2007-2010 showed, this makes them extremely vulnerable to economic calamities.

Paper assets stand apart in contrast to hard assets. Hard assets contain actual value in the nature of the item itself. There are many forms of hard assets, but among the most popular are gold, silver, diamonds, oil, platinum, land, and other such physical holdings. While financial collapses can cause a set back for the value of hard assets, these types of assets almost always hold up far better than do paper assets.

Many people are shocked by the fact that the U.S. dollar is also a paper asset, as are all Fiat currencies in the world except for the Swiss Franc. These paper currencies are no longer backed up by the long running gold standard. Instead, they only have value because their respective issuing governments, as well as the underlying currency users, say that they do. The Swiss Franc is a lonely exception. The Swiss constitution requires that for every four paper or electronic currency Swiss Francs in existence, there must be one Swiss Franc worth of gold in the Swiss National Bank vaults. Since the Swiss only value their gold holdings at around $250 per ounce, and gold has been trading between $1,300 and $1,400 per ounce for some time now, the Swiss actually have a greater gold backing to their currency than one hundred percent.

The term 'Paper Assets' is included in the Accounting edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.