And for an asset to be considered a unit of account, it must be able to be used as a medium of exchange across a variety of transactions over time between several people. 5  The hierarchy points to the reality that money is a social convention. We accept that a token has value whether made of metal, polymer or code because we expect that others will also do so readily and easily. 4  These characters currently feature on banknotes issued by private banks in Scotland. For this reason, some economists consider the operation as a unit of account to be the most important characteristic of money. Indeed, it is commonly argued that a defining feature of monetary policy lies in central banks’ control of the unit of account. See Ali, R., Barrdear, J., Clews, R. and Southgate, J., (2014) ‘The economics of digital currencies’, Bank of England Quarterly Bulletin, 2014 Q3. 5  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  Figure 2: The three functions of money  The tokens representing money have taken many forms over the millennia from cowry shells in ancient times to cigarettes during the Second World War and mobile phone minutes in modern Kenya. And so it was when the Bank of England was founded in 1694 by a Scot, William Paterson. Originally its mission (“to promote the good of the people”) was fulfilled by issuing hand-written banknotes, backed by and exchangeable into gold, to help finance King William III’s war with France.
Trichet: It is of key importance that the ECB’s independence is guaranteed by an international treaty and not just by national law. National laws can be adopted, but they can also be overturned again. FOCUS: Nevertheless, time and again the heads of state of some countries try to pressure the ECB into decisions – usually the lowering of interest rates. Trichet: I remember well that in 2004, shortly after I took office, the then German, French and Italian heads of state or government made public remarks to the effect that the ECB should reduce interest rates. We didn’t do it. FOCUS: Now, in a reversal of roles, the ECB must put pressure on many European governments. National deficits have increased so drastically as a result of the financial crisis that all EU Member States are violating the debt ceiling put in place by the Maastricht Treaty. Trichet: The Stability and Growth Pact is a fundamental economic pillar of Economic and Monetary Union. We will always call upon national governments to comply with it. FOCUS: Greece is currently brazenly violating the 3% debt limit, with its budget deficit standing at 13%. Is Greece showing you a lack of respect? Trichet: Greece has not respected the Stability and Growth Pact. Not only Greece, but also other countries – that goes without saying – must do everything they can to put their national finances in order, bringing them fully into line with the provisions of the Stability and Growth Pact.