Currency Union
There are over 200 nations in the world. Many became independent in the last thirty years, a large majority became independent over the last seventy years. Most have their own currencies. Some share a currency.
If every other country in the world can manage its currency options, why Better Together are allowed to pretend this is an insuperable obstacle for Scotland is beyond me. Are we uniquely stupid or lazy or incompetent? In fact Scots founded the Bank of England and the Bank of France (John Law).
The media has deliberately built u a non-question into “the thing that will stop Independence”. Yesterday Darling was allowed to bang on about nothing else for 12 minutes and then the pre-selected audience questions were on the same subject. This is a media propaganda construct not a real problem.
The problem is not the currency money in which is denominated – it is the fairness of its distribution we should be addressing.
The Scottish government’s preference is to enter a currency union with rUK. The strong attraction for rUK in that is that it avoids economic dislocation. Also it gives a strong hydrocarbon element to the economies underpinning the currency. Without Scotland sterling outflows in times of high oil prices could become a real problem for rUK.
So Salmond’s view is the rUK will agree to currency union, and there is no point in having a hypothetical argument based on an artificial Better Together propaganda construct that they will not.
My own view is that Scotland would be much better off with its own currency anyway, or could join the Euro. Either is a good option. But these are all perfectly possible post-independence options – none of them is a reason not to be independent.
Tuition Fees
Once Scotland is independent, it will have to treat all its fellow EU citizens the same on fees, including English students who currently – at the insistence of the UK government – have to pay.
Scotland will probably have to introduce some level of tuition fee post independence. BUT
a) There is no EU rule against giving student grants based on residence. So the Scottish government can give Scottish resident only students grants to pay their tuition fees. There can still be no net cost to Scottish students. This is what other EU countries do.
b) There will be no call for fees to be as high as the terrible 9,000 pounds a year charged in England. Tuition fee levels may perhaps be a third or half of that – with Scottish students given grants to pay the full amount. If the cheaper fees lead to a great rush of bright English students to Scotland, that will in the medium term give a great boost to the Scottish economy. Many of them will stay for the exciting new economic opportunities a dynamic independent Scotland will bring.
Oil
Mineral resources are the inalienable property of the State on whose territory – including continental shelf – they lie. Agreements made between oil companies and the UK for exploitation rights on Scotland’s continental shelf will be honoured on the same terms by the Scottish government. The tax revenues will come to Scotland instead of to the UK. There is no dispute over this whatsoever in legal or academic circles. It is an utterly ludicrous piece of false information to claim otherwise, put out by Better Together. The only dispute will be over the precise settlement of the maritime boundaries with England. But the area of dispute is in the region of whether 88 or 92% of British hydrocarbon resources are Scottish.
Excluding oil, Scotland’s GDP per capita is 98% per capita. The extent of the “oil bonus” on top indeed varies with the price of oil, but the total is certainly never going to give GDP per capita below that of rUK. Proven oil reserves will last a minimum of 50 years. What happens after 2070 when oil starts to run out is a problem which will face the entire world, not only Scotland. In the meantime, it is better to have it than not to have it.
“The uncertainty actually arises from the question of whether a currency union is a good idea for Scotland. As an independent country, they could choose to adopt their own currency. And the pure economic argument is pretty watertight that they should.”
Could you point me to this argument?
Every argument I’ve seen from both sides suggests that monetary union would be to Scotland’s advantage.
BTW Scottish banks can issue their own currency and tie it to Sterling by promising to pay the bearer in Sterling. That is what they do now and that is what Ireland did. That is not monetary union, Scotland would still not have a lender of last resort and would not enjoy Britain’s favourable terms on the world money markets.
A currency union with the eurozone or england wales and northern ireland is inimical to any form of independence.
it is time to offer a more sober analysis of how you would actually design a Scottish Monetary system using the very latest Modern Money design principles, and how Scotland would move towards true independence.
You will never sell many people in Scotland the idea that Scotland and England should have different currencies, because that would mean they would lose money changing currency every time they went to England. It would also mean that their family members in England would lose money changing currency every time they came up to Scotland.
It is reasonable for people to give serious weight to such down-to-earth considerations.
Most people in Scotland are sensible enough to know that you can’t have your cake and eat it. Those who vote YES will overlap more with those who have a tendency to believe politicians’ bullshit than with those who distrust politicians.
This is why the YES campaign has made no progress in winning over intending NO voters. (Sure, you can read what you like into the polls, but the fact of the matter is that they have ‘stuck’ for more than a year with little momentum in either direction.) Many of the intending NO voters find the SNP’s ‘hard sell’ repulsive and there’s hardly anything Alex Salmond can do to win them over. It’s possible that a swing to YES could result from something like David Cameron getting caught on camera saying Scottish people are load of uppety tossers, but I think that’s unlikely.
“It scarcely matters what Salmond says, it’s not his decision. You can’t unilaterally declare a union. The other party has already said no thanks.”
Of course they have, there would be much horse trading to be done the British government aren’t going to be giving anything away.
I have no doubt that if Salmond were prepared to sell out all those people voting for independence on the promise of say the getting rid of the nuclear weapons on the Clyde the British government might reconsider.
Don’t you think he might ditch the tree huggers to keep the bankers happy? Once he had got their vote that is.
Modern principles? When was the last time a state with a GDP as large as 0.4% of the world economy set up a currency of its own?
Windy Miller
6 Aug, 2014 – 2:45 pm
“All Mr Salmond has to do is clearly lay out what he will do if he doesn’t get the pound, and what he will do if he does.”
Windy, can you tell me why the Tory leadership; the Labour leadership and the LibDem leadership refuse to explain what their policies would be (including the currency) in Scotland in the event of a successful Yes vote?
Do they not have a plan B?
It beats me how a country like Scotland that has done so badly economically for the last century as part of the UK (along with much of England) – losing nearly all of its once great manufacturing and maritime industries – has any difficulty at all making and winning an arguement for independence. And particularly when one considers the bonanza of oil money with its once only chance to kick start the Scottish economy and get things really moving forward.
As for a future currency its simple: an independent currency backed by oil (like Norway). Their may well be other non-economic considerations, but winning an arguement on the financial benefits of independence should be the easiest task in the world (Norway Switzerland etc).
And as for the London establishment view, in opposition to independence, with their self serving and largely invented and pretend “facts” – they are masters of the art of lying as I know only too well. Indeed economicaly the City needs bailouts every generation from the taxpayers, which the rUK will not be able to afford without oil. As Disraeli who undstood their modus operendi once said “There are three types of lies: lies, damned lies and statistics”.
@Fred – “Could you point me to this argument?”
Really? The Eurozone since 2008ish has proven that having a currency union without a fiscal union is a recipe for disaster. So, does Scotland want a fiscal union with rUK? If so, fine (though how is this independence?), have fun in a currency union. But if not, you want your own currency.
In short, if Scotland wants fiscal independence, it needs monetary independence too (i.e. the ability to set its own interest rates).
There will be one-off transition costs to setting up a new currency, and very small fricitional costs ongoing due to foreign exchange transactions. I’m sure some people will want to avoid these, but quite honestly if the Eurozone experience isn’t enough to persuade people of the risks of currency unions, I’m not sure what more could convince them.
On a lighter note, here’s a question for Scottophiles: was a film ever made of Sir Walter Scott’s novel “Waverley”? Is it on DVD?
@Doug – I thought they had: in the event of Scottish independence, the rUK will not enter a monetary union and will look after its own interests, not the interests of a foreign Scotland. Your challenge risks being viewed as juvenile, althought would I be right to suppose that in your view it’s Alistair Darling’s question to Alex Salmond that was juvenile?
I really wish more of my fellow Scots would lose those chips on their shoulders. The YES camp is such a bloody chip magnet!
Salt and vinegar? Or should I say salt ‘n’ sauce? 🙂
MJ – “You can’t unilaterally declare a union.”
So if Scotland decides GBP alone will be legal tender, tell me:
(a) Is this a de facto currency union?
(b) What can rUK do about it?
“When was the last time a state with a GDP as large as 0.4% of the world economy set up a currency of its own?”
That’s a joke, surely?
A GDP of $300bn is roughly 0.4% of Global GDP (circa $75trn).
More than 100 countries have GDPs <300bn (Singapore, Chile, Israel, New Zealand to pick out a few) and print their own currencies. Absolutely no reason Scotland couldn't.
‘the Irish Republic was in currency union with the rest of the isles until the ’70s, nobody made a bid deal of it and the sky didn’t fall in.’
The currency of the Free State, and then the RoI,was tied to Sterling until 1978. Similarly, Luxembourg used the Belgian Franc during the twentieth century until both countries became founder members of the Euro. However in both cases currency management was vested with the larger party, in London and Brussels respectively, with no input from Dublin and Luxembourg.
Clearly a new version of this currency relationship could apply between England and Scotland post 2016, but that would place real limits on Scottish economic independence. Sterling was devalued twice under the Bretton Woods system, and then floated in 1972, and in each case the Irish government had no say in the matter. Similarly, when the UK decimalised in 1971 the Republic had to follow suit, willy nilly.
Does Salmond accept that the only ‘currency union’ on offer post 2016 would follow these earlier precedents ? It’s pretty clear the rUK will play hard ball with Scotland and impose these conditions on Scotland if it is too frit either to seek Euro membership, or establish its own currency. (The Euro option may however in any event be mandatory for an Independent Scotland as part of the terms of its re-admission to the EU as an independent state).
(a) Is this a de facto currency union?
No. Several countries use the US dollar as their de facto currency but they are not in a currency union with the US.
(b) What can rUK do about it?
Lots. One small consequence would probably be that ATMs in an independent Scotland would not be able to dispense GB pounds.
Roderick Russell you are a breath of fresh air, a veritable pearl cast before(mostly) swine
Well said Sir!.
“Really? The Eurozone since 2008ish has proven that having a currency union without a fiscal union is a recipe for disaster.”
Germany seems to be doing OK.
Doug,
The rUk will be very little affected but it’s not Westminster thats proposing to break the union, SNP have given the choice to the Scottish people so it should be for Mr Salmond to lead his people with clarity.
The points I was making was that either which way the vote goes there should be contingencies and no large business projects can be financed (unless balance sheet financed) with uncertainties or unknowns.
It’s not a lot to ask to what unit of currency you will be contracting on and who will be underwriting it.
All Westminster parties have said no to Scotland using the pound so Mr Salmond sounds childish when he stamps his feet and says “oh yes we will”. He must have a plan B and he will have been briefed by the business leaders on the pro’s and cons so clear communication to those of us that have to keep multi-year projects moving would be expected from the SNP leader (not that we get it from Westminster either).
@MJ:
“No. Several countries use the US dollar as their de facto currency but they are not in a currency union with the US.”
Semantics. There is no reason Scotland couldn’t adopt Ecuador’s position re. the dollar, and a currency union of sorts immediately exists. Whether in this form, or a under a formal treaty, Scotland would be subject to rate-setting in London and have no lender-of-last-resort.
“Lots. One small consequence would probably be that ATMs in an independent Scotland would not be able to dispense GB pounds.”
I’d say that’s pretty unlikely. What else?
Fred – “Germany seems to be doing OK.”
Yes ok, the country which dominates the currency union is doing fine. The rest, especially the smallest members, are in economic hell.
So here’s the question. Scotland and rUK join a currency union – who is Germany and who is Spain?
“Yes ok, the country which dominates the currency union is doing fine. The rest, especially the smallest members, are in economic hell.”
France isn’t exactly bankrupt.
“MJ
Again you troll every unionist canard in the book.”
________________
I fear that the author of the above has “mis-spoken”.
Surely the comment should have read “Again you VOICE every Unionist canard in the book?”?
🙂
The full ‘debate’ is being broadcast on the BBC Parliament Channel Freeview Ch 81 at 7pm tonight.
Craig North Sea oil peaked, ie began to run out, in 1999. Annual production has been on a downward trend for 15 years and that will continue until extraction no longer becomes economic.
“I’d say that’s pretty unlikely”
Have you ever seen an ATM in the UK that dispenses anything other than UK pounds? Have you ever seen an ATM in any country not in the UK that dispenses UK pounds?
Ed
Actually the smallest members are not in the least in economic hell. The southern members are in trouble. It is not to do with their size at all – Spain is one of the largest. It is to do with economic structures and cultural attitudes. The Euro gave them a few years of artificially high living standards followed by a very painful adjustment.
Scotland does not have the characteristics of southern economies which made incompatibilities within the euro zone.
This pales in comparison, but still worthy of mention.
https://www.middleeastmonitor.com/news/middle-east/13238-israeli-arms-factory-shut-down-by-uk-pro-palestine-campaigners-shut-down-ongoing
Salmond should have gone with the line our preference would be to keep the pound, but if that option is withdrawn, a Scottish pound will be created. The Irish managed such an arrangement for a long period before joining the Euro. I am neutral on the outcome. But I think this error will cost him the vote.
I didn’t see the debate last night, but there seems to be a lot of confusion about the currency question. It helps to look at the situation from a practical point of view.
There are no reliable figures on Scotland’s trade with the UK and the rest of the world, but HMRC in London and the Scottish government in Edinburgh publish rough partial estimates (see links below).
According to HMRC’s Regional Trade Statistics, Scotland exports about £20 billion of goods a year and imports about £15 billion.
A lot of that trade is probably with companies in rUK and probably priced in pounds.
If the Scots vote for independence, most companies in rUK selling to or buying from Scotland will still prefer to do business in pounds – although oil sales may be priced in dollars — because payment in any other currency would add to their costs and complicate their lives (since they would then have to worry about the fluctuating value of that other currency).
In other words, Scottish use of the pound post-independence would be overwhelmingly in the interest of rUK companies, whatever the No politicians may say.
https://www.uktradeinfo.com/Statistics/BuildYourOwnTables/Pages/Table.aspx
http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/Exports/GCSIntroduction
Only asking. If you are on a Hasbara website and you make anti-Israel remarks – do you become a troll. Is trolldom absolute or relative?
The London spent hundreds of years wrecking the economies of Wales, Scotland and Ireland, followed by its European, transatlantic, Asian and African neighbours.
Scotland will have many allies when it inevitably seeks revenge against London. In my lifetime, the Berlin Wall, USSR and old British Empire colonial blimp class have all gone.
If England moral bankruptcy is attacked, comes under pressure, I will be the first to pull down its heroes’ statues. England constantly absorbs and transforms its enemies into drawling snob clones.
I would love to know how many Asian Muslims are climbing up the slippery pole of UK power via the Prevent program. Scotland must be a thistle in England’s side, or an acupuncture needle to heal it’s disease.
Is Scotland ready for this challenge?
@Andrew
Nothing is going to change regarding the oil. It will continue to be traded by the oil companies at the bourse in London and priced in dollars. The fields will most likely continue to be administered by the British government. The only difference will be that the British government will then pay the Scottish government their share of the revenue. It’s unlikely that the oil companies would want to start reorganising their methods or that the Scottish government would want to start setting up rival facilities when all they are interested in is the money.
The cost of businesses trading between Scotland and the rest of Britain is an important factor but far from the only factor to be taken into consideration.
A shared currency isn’t out of the question but I think the British government would prefer not to and only agree if Scotland really made it worth their while at the negotiating table.