Why are cryptocurrencies not a good unit of account? Explain.

Expert Solution

A cryptocurrency is a digital currency which uses cryptography for security. Moreover, unlike the normal currency, cryptocurrency is not issued by the central bank of any country, and as a result no government can interfere in the operations of the cryptocurrency.

Unit of account is one of the functions of the money under which the money provides a unit of measurement of the real value of any economic item such as goods, services, and assets so that values can be recorded and compared.

Cryptocurrency are not a good unit of account because of the extreme fluctuations in the value of cryptocurrency. Moreover, the price of a cryptocurrency in terms of any currency like US dollar does not show any correlation with the price of a cryptocurrency in terms of other currency say Euro. In other words, it is very difficult to determine the exchange rate in the case of cryptocurrency. In addition to this, value of cryptocurrency is also not correlated with the value of gold.

Rahul Sunny answered 2 years ago

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