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A unit of exchange that people adopt as a benchmark when comparing similar instruments or goods

What is Numeraire?

Numeraire is an economic term that refers to a unit of exchange that people adopt as a benchmark when comparing similar instruments or goods. The term “numeraire” is a French word that translates to “face value” or “money.” A numeraire is applied to a single instrument or product, which is then used as a benchmark for the entire market of similar products or financial instruments in an index.




A numeraire can also be a currency or a product whose price is set at one. In the monetary economy, money is used as a numeraire, and it serves as the unit of account when determining the value of goods. In simple terms, it means that money, regardless of the currency, acts as the benchmark relative to which the value of goods and services in a market is determined. The numeraire facilitates value comparisons when the relative prices are relevant in the market.



  • Numeraire refers to a financial instrument, currency, or product that is used as a standard when comparing the value of similar items.
  • The numeraire allows value comparisons of similar products when the relative prices of the other products are relevant.
  • An example of numeraire is the US dollar, which is used as the denominating currency when determining oil prices in the international market.


Understanding Numeraire

The practice of using currencies as a numeraire came into existence a long time ago. During the mid-20th century, when trading in gold was a common practice among traders, the US dollar was priced at one thirty-fifth of the value of one ounce of gold.

Other currencies – such as the British pound, yen, and euro – were benchmarked on the US dollar. Therefore, the US dollar was the numeraire, and the other currencies were calculated as a fraction or a multiple of the US dollar.

The US dollar was the most widely used currency, and its price was fixed to the price of gold, which was a medium of exchange. For example, if currency X held twice the market value of a unit of the numeraire (US dollar), the relative price of currency X is 2.


The US Dollar Index

The US dollar index was a numeraire established after the Bretton Woods Agreement was dissolved in 1973. The index was used to measure the value of the dollar against a basket of other currencies including euro, Japanese yen, Canadian dollar, British pound, Swiss franc, and Swedish krona. The currencies comprise the most significant trading partners of the United States. The US dollar index was established with a base of 100, and it is a fair indication of the value of the dollar in international markets.

Over the years, the US dollar index’s fluctuated sharply. The index reached the highest point in February 1985 at 164.72, and the lowest point during the 2008 Global Financial Crisis at 70.698. As of March 2020, the index reached a value of 100.35, which is the same level as the index starting value in 1973.

The value of the US dollar index is affected by various factors, such as recessions, economic growth, and inflation/deflation of the US dollar and component currencies included in the comparable basket. Traders monitor the value of the index against the basket of currencies to allow them to hedge against any risk linked to the dollar. They can also use the index to hedge the expected currency moves and to speculate when the dollar is expected to gain or lose.


Numeraire in the Oil Industry

Oil prices in the international market are highly volatile, and most countries benchmark the oil prices in their local markets using the US dollar as the base unit. The US dollar is a strong currency that is widely accepted in the international market, and denominating oil prices in US dollars standardizes the oil prices. The practice makes it possible for companies trading in oil to accept and receive payments quickly since oil is denominated in a globally recognized currency with known exchange rates against other foreign currencies.

Foreign oil exporters and importers can also determine the value of oil in their currency using the US dollar as a benchmark. It also allows other countries to see how the currency compares to the US dollar to determine the price of oil. When the value of the US dollar goes up, it means that the US currency is gaining against the foreign currency.


Numeraire (Cryptocurrency Term)

Numeraire is a cryptocurrency from Numerai, a hedge fund company established in 2015 by Richard Craib. The cryptocurrency was launched one year after Numerai began operations, and the product was designed to address the challenges that the company faced when operating on the Bitcoin network.

The company allows data scientists to download data on the company’s website for use in creating models that predict market movements. The models are created using a combination of machine learning, artificial intelligence, cryptography, and data science. The participants are required to stake several Numeraire tokens to prevent data tampering. Scientists with the top models get back the Numeraire tokens and additional payment in Bitcoins.


Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • At Par
  • Functions of Money
  • USD/CAD Currency Cross
  • Virtual Currency

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