A monetary unit is the basic primary denomination of a currency. While not usually the lowest value monetary unit, it is generally considered the first whole denomination, of which lower value units are considered fractional denominations. In the United States, the basic monetary unit is the dollar; other countries and regions with different currencies have a distinct monetary unit, such as the peso, the euro, and the yen.
Creating a basic monetary unit adds stability of definitions to an economic system. It can serve as a reference point for value and prices, giving the market a vocabulary of value. For instance, if a sandwich costs $5 US Dollars (USD), the value of the sandwich is interpreted through the understanding of the monetary unit. Whether that price is considered expensive or inexpensive has to do with the perceived value of the sandwich, and the current level of inflation.
While adding some sense of stability, a monetary unit is not actually a stable concept. According to some inflation calculators, the buying power of $100 USD in 1900 would equal the buying power of a little over $2500 USD in 2009. While the literal unit of money did not change, its purchasing power shifted greatly over a century due to a wide variety of factors, including inflation. Therefore, while a monetary unit provides a concrete definition of a denomination, its value may be relative.
It's generally impractical to issue currency only equal to the basic unit, thus currency systems usually create many different denominations of currency that are either multiples or fractions of the original primary unit. In the British pound sterling, fractional denominations include one, five, 10, 25, and 50 pence pieces, which are all fractional divisions of the pound. Multiples of the basic unit, such as $20 USD bills, make it far more convenient to carry and use larger sums in cash.
A monetary unit helps to define and unite a nation or region. Using the same form of currency promotes ease of trade, by avoiding complex issues of foreign exchange rates and currency validation. Some economic analysts argue that the adoption of a universal monetary unit is all but certain in the future, as global trade becomes both more convenient and more common. Nevertheless, some nations, such as the United Kingdom, see their currency as a unique part of national character, and have rebuffed opportunities to join the widespread European currency system, at least partly due to nationalistic concerns.
