Why the Unit of Account Matters More Than You Think

The Foundation of Money’s Three Powers

Money serves three critical functions in any economy, and one of the most overlooked is serving as a unit of account. While store of value and medium of exchange get plenty of attention, the unit of account function is equally essential—it’s the measuring stick that lets us compare and quantify everything from a coffee to a mansion.

A unit of account is fundamentally a standardized measurement system. It’s what allows us to determine if something is worth $100 or $1,000, and it enables us to track wealth, calculate profits, and make informed economic decisions. Without it, commerce becomes impossible because there’s no common way to express value across different goods and services.

How Nations Use Units of Account—And Why It Matters for Global Trade

Every country establishes its own unit of account through its national currency. The euro (EUR) serves this function in the eurozone, the British pound (GBP) in the UK, and the yuan in China. But internationally, a single currency dominates: the U.S. dollar (USD) has become the de facto global unit of account for international invoicing, pricing and economic comparisons.

This concentration creates a hidden unit of account cost. When businesses and nations must constantly convert between currencies, they face exchange fees, price volatility risk and administrative overhead. The USD’s dominant position simplifies global trade but also means every non-dollar economy carries the burden of currency conversion expenses.

What Makes a Valid Unit of Account?

For something to function effectively as a unit of account, it must possess two critical properties:

Divisibility: A unit of account must break down into smaller denominations without losing value or functionality. This enables precise pricing whether you’re buying a $0.99 item or a $999,999 property.

Fungibility: One unit must be perfectly interchangeable with another identical unit. One dollar is indistinguishable from another dollar; one euro equals one euro. This interchangeability is what makes economic calculations reliable and standardized across all market participants.

Inflation: The Silent Destroyer of Unit of Account Reliability

The greatest threat to any unit of account isn’t divisibility or fungibility—it’s inflation. When a currency’s purchasing power erodes, the unit of account function weakens dramatically.

Consider this: if a unit of account loses 5% of its value annually, comparing prices over time becomes increasingly unreliable. A business trying to assess whether to invest in new equipment must now account for currency degradation alongside market conditions. Consumers planning long-term savings find their purchasing power constantly shrinking. This uncertainty forces individuals and businesses into defensive financial strategies rather than productive ones.

When inflation runs high, markets struggle to process accurate price signals. People can’t reliably compare value, investment decisions become riskier, and economic planning becomes nearly impossible. The unit of account cost multiplies as transaction complexity increases.

How the Unit of Account Shapes Economic Measurement

Beyond everyday transactions, the unit of account function determines how we measure entire economies. The American economy is quantified in dollars, the Chinese economy in yuan, and so on. This measurement framework allows governments, investors and analysts to track national wealth, compare economic performance, and set interest rates.

The unit of account also enables personal and corporate accounting. Net worth calculations, profit and loss statements, asset valuations—all depend on a stable, accepted unit of account. Without one, financial planning becomes guesswork.

Bitcoin and the Unit of Account Problem

Bitcoin’s architecture addresses the inflation vulnerability that plagues traditional units of account. With a fixed maximum supply of 21 million coins, Bitcoin cannot be printed at will like government currencies. Central banks cannot increase the money supply during crises, which means the unit of account function remains mathematically constant.

This creates fascinating possibilities. If Bitcoin achieves global acceptance as a unit of account, several economic dynamics would shift:

Predictable Value Assessment: Businesses and individuals could plan long-term investments without worrying about hidden currency erosion. The unit of account cost from inflation would disappear entirely.

Fiscal Discipline: Governments could no longer print money to fund spending or stimulate economies. Policymakers would be forced to prioritize innovation, productivity and genuine economic growth rather than monetary stimulus.

Reduced Transaction Costs: Today’s international trade requires constant currency conversions. A global unit of account would eliminate exchange fees and currency fluctuation risks, reducing the hidden costs embedded in every cross-border transaction.

Greater Economic Stability: A unit of account not subject to inflationary pressure would provide stability for long-term contracts, savings vehicles, and financial planning.

The Caveat: Bitcoin Still Has Maturing to Do

Bitcoin remains relatively young in economic terms. While it possesses the technical properties needed—it’s divisible (down to satoshis), fungible (one bitcoin equals another), censorship-resistant, and accepted by a growing global community—it hasn’t yet achieved sufficient mainstream adoption to serve reliably as a unit of account.

For Bitcoin to become a true global unit of account, it would need widespread institutional and governmental acceptance. It would need to overcome regulatory uncertainty and achieve the kind of network effects that the USD currently enjoys.

What an Ideal Unit of Account Would Look Like

The gold standard for a unit of account would resemble the metric system: stable, measurable, standardized and unchanging. A money with preprogrammed, inelastic supply that operates independent of external political or economic pressures would revolutionize global commerce.

While no currency will ever achieve the perfect constancy of the metric system—because value itself is subjective and circumstances constantly shift—a unit of account with fixed supply characteristics comes far closer than today’s inflationary fiat currencies. Such a system would dramatically reduce the hidden unit of account costs that businesses and individuals currently bear.

A stable, globally accepted unit of account would provide the foundation for more confident economic planning, fairer international trade, and ultimately, more responsible decision-making across governments, businesses and households worldwide.