European Units of Account

Updated: Aug 20, 2021

This article must bee seen in a historical perspective.

Because of the variety of national currencies the European Economic Community found it necessary to invent a common unit of account for book-keeping purposes. Units of account have been invented for the budget, the European Coal and Steel Community, agriculture, the European Investment Bank, customs tariff and the European Development Fund. Initially, all these units were defined as having the value of 0,88867088 gram of fine gold and were converted into member countries’ currencies at their par rates of exchange. After the international policy of fixed exchange rates was abandoned in 1972, the gap between the conversion rate of units of account and actual market rates made the system impractical. The revised unit of account is defined as the sum of amounts of each member country’s currencies. These amounts are fixed at a level relating to the size of each member country’s economy. The value of a unit of account in terms of any currency is calculated daily by translating each amount of currency in the ‘basket’ into, say, dollars according to the going rates of exchange for that currency and adding up the resultant sums. The original gold-based unit of account is still used for the agricultural budget. In 1979 an additional unit of account was introduced on the implementation of the European Monetary System called the European Currency Unit (E.C.U.).

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.