Tuesday 30 April 2013

Scottish £s

No one should ever have expected any report coming out of the UK Treasury to say anything other than that Scottish independence is a bad idea, and identifying a whole host of practical problems associated with the SNP’s proposal that Scotland should retain the £ sterling.  Equally, no one should have expected the SNP to do other than rubbish the report.  Honour satisfied all round.
However some of the points made by the Treasury have at least a little validity.  The Treasury isn’t always wrong just because it’s part of the UK government.  I’m not sure that the RUK could, even if it wanted to, actually prevent an independent Scotland from declaring the pound sterling to be legal tender.  As a parallel, there are plenty of places in the world quite happy to accept US dollars without having any input into dollar policy.  There’s the rub though – the RUK could indeed decide not to give an independent Scotland any input into its monetary policy.
Whether they would do so or not is another question; I suspect that the SNP is right to assume that this is little more than posturing at this stage.  Everything in the UK’s history suggests that pragmatism and negotiation will be the order of the day if Scotland votes yes – they are just trying to make sure that that situation never occurs.
Acceptance or otherwise of Scottish banknotes looks like a little bit of froth on the whole argument; it’s pretty hard to get them accepted anywhere outside Scotland at present, and that seems unlikely to change. 
The real underlying point arising from the Treasury report however is that Scottish influence on monetary policy for sterling would be close to zero in practice, yet that monetary policy would have a huge influence on the Scottish economy.  In effect, that means little change from where Scotland is today, but I can’t help thinking that “independence” would be more meaningful if Scotland were to break its link with a monetary policy primarily designed to suit the south-east corner of England.
The political rationale for keeping the pound sterling is obvious; it makes independence look like less of a change and less of a gamble, and therefore easier to garner support.  The economic rationale is a lot less obvious to me; I suspect that membership of the Sterling area would turn out to be, in the timescale of these things, a comparatively short phase before Scotland’s eventual adoption of the Euro; a commitment expected of new EU member states.
It’s for Scotland to decide of course; but if it happens there will be some useful pointers for Wales coming out of this debate.


Anonymous said...

I totally agree with you regarding monetary policy at the present time is suited towards the south east corner of the UK. But isn't the Euro in the same way suited towards what German needs are rather than any other part of the Euro area? And that's why the Euro in the same way as the pound.....is not working for millions of people outisde of certain areas.

G Horton-Jones said...

Hold on a minute Scottish banknotes are legal tender through out the UK at the present time and the statenent that they are hard to get accepted is not valid
Some parts of the country (England) operate their own local money system.
The Welsh notes were legal tender in as much as they could be honored in full as all paper money is only a promissary note between parties aka an IOU.
HSBC make a big fuss off the global economy and different currencies but try opening a Euro account with them.
In a world of global debt and the likes of quantitative easing what currency is not or should be under the microsope. There is nothing about Sterling that we should have unbridled devotion to or confidence in. We are in the endgame of Empire and my money is on Wales having a decimal currency in the Eurozone

a decimal currency

John Dixon said...


For sure, having currency policy set to meet the needs of someone else places constraints on any economy; and that is as true of the Euro as it is of the £. I'd argue though that, on the whole - and taken over the long term rather than the short term - European monetary policy has been more suited to a manufacturing economy whilst UK policy has been more geared to an economy based on financial services. Which of those two approaches is best (or perhaps simply least worst) for Wales and Scotland?


Being legal tender isn't the same as being easily accepted. My own experience of trying to use Scottish banknotes on return from Scotland is that they're not readily accepted by people who've perhaps never seen one before.

Keith Parry said...

Scotland when she becomes independent should have her own national bank and currency. The folly of the Euro was not allowing the value nations currencies to adlust to the economic circumstances of the individual nations.
We in Wales have suffered for years from an over valued pound that has destroyed Welsh industry. Our economic recovery will start when we have our own currency, national bank and the government of an independent state committed to put things right.

John Dixon said...


Ultimately, it's a matter for Scotland, of course; one of my main interests is the implications and lessons for Wales.

I understand the nationalist argument for a separate currency, but there is a little matter of the EU rules applying to new member states (which commit them to adoption of the Euro). I can see how an exception might be allowed for the retention of an existing currency, for a time at least, but not how an exception would be made for a completely new currency. I don't think that's a realistic aspiration for an EU member nation.

Keith Parry said...

Wales,Catalonia,Scotland etc. will be members of the E.U. on independence.
The U.K. Treasury has already said it will not allow Scotland to keep the pound on independence. It will be hostile to a Free wales having the pound too. We will have to have our own currency.Spanish E.U. Officials will be gone beforelong.

Anonymous said...

"The U.K. Treasury has already said it will not allow Scotland to keep the pound on independence. "

No it hasn't. It's said it won't be ideal for Scotland and that they'll have little or no control over monetary policy. But they won't actually "not allow" them.

The SNP has no plans for a separate currency.