Swiping a line from the Wikipedia entry for "Numéraire":
...If a store sells 1 can of soup for $1.20, the numéraire is dollars. If the store would buy $1 for 5/6 of a can of soup, the numéraire is cans of soup. Trading a can of soup is simpler than trading fractional cans of soup, so most stores use a numéraire of money, which has fractional units....The numéraire was the whole point of my comment on the FT Alphaville article "Debunking goldbugs":
Are you quoting rocks per dollar or dollars per rock?As long as gold is quoted as dollars-per-ounce it is the dollars that are money, not the gold.
Or the Bitcoins.
From The Atlantic:
...In other words, Bitcoin has a massive deflationary bias. Its money supply is mostly fixed, but the menu of things it can buy is growing. The same amount of money chasing more goods means money will be worth more. Or, put another way, prices will fall in Bitcoin terms.And that's why it's not a currency, and won't be one until it has a central bank.Deflation is toxic for any economy, but particularly for an alternative one like Bitcoin. No matter what kind of currency we're talking about, deflation causes hoarding -- why buy something today if you can buy it for less tomorrow? -- that crushes economic activity. The question is what to do about it. In his classic essay on the Capitol Hill babysitting co-op, Paul Krugman explained that the easiest solution is to just increase the supply of money to meet the increased demand for money. In other words, get that printing press going! That stops hoarding, which gets people buying again, which sets off a new virtuous cycle.But what if you can't print more money? Then the hoarding feeds on itself. With a normal currency, say the dollar, the prices of everything else will keep falling, since everything else is priced in dollars. Falling wages will make debts that aren't falling harder to pay back, which will force more people into bankruptcy -- and then increase demand for dollars even more. In other words, it creates a depression. But with an alternative currency, say Bitcoin, the price of everything else will stay the same, since everything is still priced in dollars, and the price of Bitcoin itself will go up. The increasing price of Bitcoin will increase demand for Bitcoin -- it's a speculative bubble -- just as hoarding is reducing supply. In other words, prices will go vertical....MORE
The bit on deflation being toxic is incorrect but otherwise he seems to have a grasp of this stuff.
