Unit of account

economic-dictionary

A unit of account is a widely accepted standard measure for expressing the price of goods or services, debts, and other economic magnitudes.

A unit of account is a measure agreed between agents to express the value of goods, services, assets, transactions, etc. It is a numerical unit that allows reflecting different levels (more or less) and doing operations (subtraction, addition, multiplication, etc.).

Use of unit of account

Having a defined unit is useful for facilitating value comparisons and making economic decisions. Thus, for example, it is easier for us to access information on changes in the relative prices of goods, the cost of indebtedness, investment profitability, etc.

In addition, it facilitates transactions and negotiation by allowing two parties to consider information in the same unit.

What is used as a unit of measure

Usually the legal tender in a country is used as a unit of measurement in the limits of its territory. However, the coin does not necessarily have to fulfill this function. It is known that in the past other goods have been used as a unit of account such as: grams of gold, cocoa beans, etc. Also today we have the currencies of different countries and also cryptocurrencies that are used as a unit of account in various transactions.

Money and the unit of account

One of the functions of money is to serve as a unit of account. This fact has served for some as a justification for the existence of a monopoly in the issuance of money by the Central Bank.

Notwithstanding the foregoing, we must bear in mind that the function of the unit of measure is not exclusive to money issued by the Central Bank or even to money in general. Different types of goods can serve as a unit of account and different types of currencies can coexist that fulfill the same function.

When we have different units, comparisons can be made a bit more difficult, but the cost is reduced when we have access to information on the exchange rates between the different units and there are mechanisms to be able to change one unit for another. In fact, several types of currencies currently coexist that are used as a unit of account.

Tags:  comparisons banks markets 

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