DEFINITION of 'Numeraire'

An economic term that represents a unit of account. In French, the term means "money", "coinage" or "face value". A numeraire is usually applied to a single good, which becomes the base good. All similar goods are then valued and priced against the base good. This comparison makes it possible to identify which goods are worth more than others.

BREAKING DOWN 'Numeraire'

An example of a numeraire arises when we look at how currencies were valued under the Bretton Woods system during the mid-twentieth century. The U.S. dollar was priced as one-thirty-fifth the price of an ounce of gold. All other currencies were then priced as either a multiple or a fraction of the dollar. In this situation, the U.S. dollar acted as the numeraire because it was fixed to the price of gold.

RELATED TERMS
  1. USD (United States Dollar)

    The currency abbreviation for the United States dollar (USD), ...
  2. The Coinage Act Of 1792

    Regulation passed by Congress on April 2, 1792 that established ...
  3. Bretton Woods Agreement

    A landmark system for monetary and exchange rate management established ...
  4. Value

    The monetary, material or assessed worth of an asset, good or ...
  5. USD

    In currencies, this is the abbreviation for the U.S. dollar. ...
  6. Gold Standard

    A monetary system in which a country's government allows its ...
Related Articles
  1. Trading

    Global Trade And The Currency Market

    Learn how the Bretton Woods system got the ball rolling for world trade.
  2. Trading

    Bretton Woods: How It Changed the World

    While the Bretton Woods system is no longer in place, it fundamentally changed the international monetary order.
  3. Investing

    Gold: The Other Currency

    Throughout history, gold has held its value against paper currencies. Learn how it can help offset market risks.
  4. Investing

    The Gold Standard Versus Fiat Currency

    What do "gold standard" and "fiat system" mean for currencies and economies? Investopedia explores the history of the gold standard and the rise of fiat.
  5. Insights

    Understanding the Bretton Woods Agreement

    The Bretton Woods Agreement is a famous international monetary agreement that came out of a meeting of the UN Monetary and Financial Conference.
  6. Trading

    Forex: World's Biggest Market A Relative Newcomer

    Unlike the stock markets, the forex market is a truly new market. We’ll take a brief look at its origins and how it works today.
  7. Investing

    How Gold Affects Currencies

    There is a strong correlation between gold's value and the strength of currencies trading on foreign exchanges.
  8. Investing

    Why Gold's Price is More than 'Supply and Demand'

    The price of gold is moved by a combination of factors. But the way they work together is sometimes counterintuitive.
  9. Investing

    What's Fair Value?

    Fair value has three different meanings depending on the context.
  10. Investing

    Why Gold Is No Longer the Currency King

    Although a gold standard seems like a good idea, looking at its role in U.S. history reveals that it may not be the beacon of stability that it claims.
RELATED FAQS
  1. What is the difference between a capital good and a consumer good?

    Learn to differentiate between capital goods and consumer goods, and see why capital goods require savings and investment ... Read Answer >>
  2. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  3. What was the Gold Reserve Act?

    The Gold Reserve Act of 1934 gave the government the power to peg the value of the dollar to gold and adjust it as it pleased. ... Read Answer >>
  4. What are key economic factors that can cause currency depreciation in a country?

    Read about the causes of currency devaluation, and find out how to differentiate between relative and absolute currency devaluation. Read Answer >>
  5. Is a good's production cost related to its value?

    Learn about the history and debate regarding the metrics used to determine the value of a good and which theories place emphasis ... Read Answer >>
  6. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center