Why Your Economy Needs a Better Unit of Account: An Exploration of Money's Most Overlooked Function

Every day, billions of people engage in transactions without thinking about the invisible machinery that makes it all possible. That machinery is the unit of account—the common denominator through which we measure, compare and ultimately assign monetary value to everything we buy, sell or own. Yet despite its ubiquity, the unit of account remains one of the most misunderstood functions of money, overshadowed by its more celebrated cousins: the store of value and the medium of exchange.

Understanding the Unit of Account: More Than Just a Price Tag

At its core, the unit of account is the standard measure through which we quantify economic value. It’s the measuring stick that lets us compare the price of a house to the price of a car, or an hour of labor to the cost of groceries. Without it, economic calculation becomes nearly impossible. When you see a price tag labeled in dollars, euros or yuan, you’re looking at the unit of account at work—the shared metric that makes comparative valuation possible.

The unit of account serves several critical functions simultaneously. It allows individuals and businesses to calculate profits and losses, track assets, determine interest rates and assess net worth. Governments use it to measure economic output, comparing GDP across nations in a common denominator. Internationally, the U.S. dollar has emerged as the dominant unit of account for cross-border transactions and pricing, creating a global framework for economic comparison that would otherwise be fragmented across hundreds of local currencies.

Think of it as the economic equivalent of the metric system. Just as the meter provides a universal standard for measuring distance, a unit of account provides a universal standard for measuring value. This standardization makes transactions, comparisons and long-term financial planning far more straightforward.

The Three Pillars: How Unit of Account Works Alongside Store of Value and Medium of Exchange

Money performs three universally recognized functions, and each one matters for different reasons. The medium of exchange is what we think of most often—the ability to trade money for goods and services. The store of value keeps our purchasing power intact over time, allowing us to save and delay consumption.

But the unit of account is the foundation that makes the other two possible. Without a common standard for measuring value, you couldn’t meaningfully exchange goods or store wealth. It’s the framework that gives structure to all economic activity. These three functions typically develop in sequence: first, something becomes a store of value; then it evolves into a medium of exchange; and finally, once widely accepted as a measuring standard, it establishes itself as the unit of account. Bitcoin, for instance, is still progressing through this evolutionary process—it functions as a store of value for many holders, and an increasing number of merchants accept it as a medium of exchange, but its path to becoming a global unit of account remains incomplete.

Why Divisibility and Fungibility Matter for Any Unit of Account

For something to function effectively as a unit of account, it must possess two essential characteristics: divisibility and fungibility.

Divisibility enables a unit of account to fracture into smaller units without losing its utility. A dollar can be divided into cents, Bitcoin into satoshis, and this flexibility makes it possible to represent the value of any good or service, regardless of price. Without divisibility, you’d struggle to accurately price low-value items or make precise economic calculations.

Fungibility means that each unit is perfectly interchangeable with another of equal denomination. One dollar bill holds identical value to another dollar bill; one Bitcoin is worth the same as any other Bitcoin. Fungibility is crucial because it removes friction from valuation—you don’t need to evaluate the quality or history of individual units; they’re all equivalent. This property underpins trust in the unit of account system itself.

Together, these characteristics create a seamless framework for valuation that doesn’t require constant negotiation or subjective assessment. They’re what allow vast, complex economies to function without constant friction.

Inflation’s Hidden Cost: The Erosion of Your Unit of Account

Here’s where the current system reveals its weakness. Inflation—the expansion of the money supply and the subsequent decline in purchasing power—doesn’t eliminate the unit of account function, but it severely compromises its effectiveness. When prices are unstable, the unit of account becomes an unreliable measuring stick.

Imagine trying to use a ruler that shrinks unpredictably. That’s essentially what inflation does to currency. A dollar in your hand today isn’t equivalent to a dollar five years from now. This uncertainty cascades through the entire economy. Businesses find it harder to plan capital investments. Savers can’t reliably project future purchasing power. Interest rates must compensate for this instability by rising, increasing the cost of borrowing. Worst of all, the long-term reliability of the unit of account deteriorates, making it increasingly difficult for market participants to make informed decisions about consumption, savings and investment.

Governments and central banks have historically printed currency at will to fund expenditures or stimulate economic activity. This constant expansion undermines the stability of the unit of account, creating a system where the measuring stick itself is constantly changing.

Bitcoin’s Fixed Supply: A Path Toward a More Stable Unit of Account

Bitcoin introduces a fundamentally different model: a unit of account with a mathematically fixed maximum supply of 21 million coins. This immutable supply ceiling means Bitcoin cannot be devalued through printing, quantitative easing or monetary expansion. For the first time, we have the possibility of a unit of account that resists the inflationary pressures that plague traditional currencies.

This fixed supply has profound implications. It introduces genuine scarcity and predictability into the monetary system. Individuals and businesses could plan long-term financial strategies with confidence that the underlying unit of account won’t be diluted through supply expansion. The temptation that currently drives monetary policy—printing more money to solve economic problems—would disappear entirely. Policymakers would be forced to focus instead on productivity, innovation and sustainable growth rather than monetary stimulus.

Moreover, Bitcoin’s fixed supply creates resistance to political manipulation. No government can arbitrarily alter Bitcoin’s monetary policy to favor short-term political gains. This censorship-resistant property, combined with the immutable supply cap, creates a unit of account whose rules cannot be changed through political pressure or executive decree.

However, it’s important to acknowledge that Bitcoin remains relatively young. For it to achieve widespread adoption as a global unit of account, it must demonstrate greater price stability and achieve broader acceptance across commercial ecosystems. The volatility that characterizes Bitcoin today makes it challenging for merchants to use as a consistent unit of account for pricing. This is primarily a maturation issue—as adoption grows and market liquidity deepens, volatility tends to decline.

The Global Implications: Unit of Account in an Interconnected Economy

If Bitcoin or a similar cryptocurrency were to achieve the status of a globally accepted unit of account, the implications for international commerce would be revolutionary. Currently, currency exchanges introduce friction, cost and risk into cross-border transactions. Importers and exporters must constantly navigate fluctuating exchange rates, and the cost of currency conversion can be substantial, especially for smaller transactions.

A universal unit of account that transcends national borders would eliminate this friction. International trade would become simpler and cheaper. Small businesses could participate in global commerce without incurring substantial currency conversion costs. Investment capital could flow more freely across borders. The reduction in transaction costs alone would likely stimulate significant economic growth.

Furthermore, a stable, global unit of account would facilitate more rational economic decision-making at the international level. Currently, currency devaluation serves as a tool of economic policy—nations sometimes deliberately weaken their currency to improve export competitiveness. A non-inflationary, borderless unit of account would remove this policy tool, forcing countries to compete through genuine productivity and innovation rather than monetary manipulation.

The Ideal Unit of Account: Stability, Divisibility and Acceptance

So what makes an exceptional unit of account? Start with the fundamentals: it must be divisible into smaller units and perfectly fungible. Then add stability—the most critical property lacking in current fiat currencies. Finally, it must achieve broad acceptance and censorship-resistance, making it resistant to political interference.

The metric system works so effectively because it’s standardized, universal and unchanging. An ideal monetary unit of account would embody similar properties—a consistent, reliable measuring stick that doesn’t shift based on political considerations or monetary policy decisions. While Bitcoin still has considerable maturation ahead before achieving this ideal, its fixed supply and decentralized nature position it as a compelling alternative to the inflationary monetary frameworks that dominate today’s global economy.

The question facing our economic future isn’t whether we need a better unit of account—it’s whether we’re willing to reimagine what that might look like.