Numéraire

Numéraire is the standard unit of value in an economy or market, used as the unit of account to express prices and compare values. It can be a currency, such as the dollar or euro, or a commodity, such as gold, or even a basket of goods. The choice of numéraire affects price expressions and accounting, but not the underlying relative values.

Historically, different commodities have served as numéraire, for example gold in many monetary systems. In modern economies, fiat money issuing authorities designate a principal medium of exchange and unit of account; in some specialized contexts, a non-currency commodity or synthetic unit is designated as numéraire for pricing or financial modeling. Funds, contracts, or prices can be stated in alternate numéraires.

In foreign exchange, the term numéraire refers to the currency in which a quote is made or a payoff is settled. A pair like USD/JPY expresses how many yen are required to buy one dollar; the numéraire is typically the base currency, though the role can be reversed depending on convention. In finance, changing the numéraire is a mathematical technique used to simplify pricing and hedging by choosing an asset whose value serves as the reference unit.

In mathematical finance, the numéraire is the unit used to discount future cash flows; selecting a different numéraire induces a change of measure that preserves no-arbitrage pricing. The concept distinguishes the unit of account from the actual purchasing power and from the physical quantity of money, emphasizing its role as a standard reference for valuing diverse assets.