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Wednesday, 9 July 2014

Bitcoin is not a monetary unit of measure or unit of account

Bitcoin is not a monetary unit of measure or unit of account

A monetary unit of measure is often mistakenly called a unit of account by the man in the street and even by a US federal judge. See 

Distinguishing the Unit of Account from the Unit of Measure


Money is always a monetary unit of measure. The best known monetary units of measure are the best known fiat currencies in use today: US Dollar, Euro, Pound, Peso, Rouble, Yuan, Yen, Shilling, etc. All fiat currencies are monetary units of measure.

They are all monetary items when used inside the economy where they are created. They are variable real value non-monetary items when used as foreign exchange outside the economy where they are created.

Money (any fiat currency) as the monetary unit of measure is the only unit of measure that is not based on a constant value. It is thus assumed for accounting purposes only under Historical Cost Accounting and Current Cost Accounting (which implement the stable measuring unit assumption) that all monetary units of measure are perfectly stable in real value for the purpose of measuring monetary items not inflation-indexed and constant real value non-monetary items only during low and high inflation and deflation.

All other units of measure are based on constant values, e.g., inch, foot, yard, mile, kilometer, meter, pound, gram, ounce, watt, etc.

A monetary unit of measure is an assumed to be perfectly stable in real value, monetary item (fiat currency) - in the economy where it is created - used to account economic activity in terms of the double entry accounting model.

The best known double entry accounting model is the traditional, generally accepted, globally implemented Historical Cost Accounting model.

Other double entry accounting models are:

Capital Maintenance in Units of Constant Purchasing Power in terms of the Daily CPI.

Current Cost Accounting 

Thus, bitcoin, the digital unit of the Bitcoin digital payment platform, is not a monetary unit of measure,  because all units of measure are either based on a perfectly constant base unit (e.g., inch, centimeter, gallon, pint, watt, ohm, etc.) or - only in the case of monetary items - assumed to be perfectly stable in real value only during low and high inflation and deflation and only under the Historical Cost Accounting and Current Cost Accounting models. 

A bitcoin is not a monetary unit of measure because economic items are not generally priced or measured in bitcoins. No financial reports are prepared in bitcoins. No set of accounts is prepared in bitcoins.

Monetary units of measure are all monetary items (currencies) assumed to be perfectly stable in real value only during low and high inflation and deflation only under HCA and CCA.

Bitcoins are not perfectly stable in real value and are not and cannot be assumed to be perfectly stable in real value because they are not monetary items.

Bitcoin is always a variable real value non-monetary item similar to a limited issue rare stamp in digital form.

Thus, bitcoin is not and cannot be a monetary unit of measure for accounting purposes. Bitcoin is not a monetary unit of measure because it is not perfectly stable in real value and it is not and it cannot be assumed to be perfectly stable in real value because a bitcoin is not a monetary item.

Bitcoin is a digital variable real value non-monetary item. The bitcoin digital units are numbered in terms of the normal numbering system: 1, 2, 3, ..... 

The fact that a US federal judge referred to bitcoin as a unit of account (mistakenly meaning monetary unit of measure) does not constitute a binding definition or description since it was made under US common law. Any other US common law judge can have a different opinion.

Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.