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Unit of Account

Unit of account (also known as “standard of value”) is one of the three essential functions of money, together with medium of exchange and store of value.  Money as an accounting unit means it represents a standard numerical unit of measurement enabling uniform interpretation of value and cost. “Without a widely agreed upon unit of measurement we cannot settle debts or establish effective price systems, both key elements of market economies” 1. This unit of account is often at parity with other measuring systems, including:

Denomination v Unit of Account Denomination differs from ‘unit of account’ in that denominations describe the units in which a currency can really be obtained (the physical notes or coins, for example), while ‘unit of account’  refers to the standard numerical unit of measurement enabling uniform interpretation of value and cost, e.g. dollar, hour or gram of gold. A more concise term for the unit of account function is numeraire. The difference between the unit of account and denomination can best be illustrated through a practical example. For the Bristol Pound the unit of account is the £ sterling but it is denominated in B£.

References

  1. New economics foundation, (2013) Energising Money – An introduction to energy currencies and accounting, London, p.18
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