The independence debate took a bizarre turn last week as the two sides reversed roles.
The Nationalists were arguing for keeping the union with England, at least as far as the pound is concerned, while the Unionists were busy demanding that the SNP come up with a design for a separate currency. In his first major policy speech as Scottish Secretary, Alistair Carmichael demanded that the Scottish Government produce a "Plan B" - an alternative currency to the pound if Scotland is refused access to the sterling zone.
At First Minister's Questions on Thursday, Labour leader Johann Lamont called for a vision of currency separatism. She quoted Scottish Government adviser Colin McKay as saying there was no way of guaranteeing that Scotland would remain in a currency union with England after independence. What McKay actually said was: "We cannot assert as a priori fact that we can achieve a currency union with the United Kingdom." Well, said Labour, whaur's yer plan B, Alex? The chair of the Scottish Affairs Select Committee of MPs in Westminster, Ian Davidson, weighed in with a warning that the Scottish Government had a "propensity to mislead and misrepresent" and that the White Paper on independence must come up with a credible plan for Scotland leaving the sterling area should its negotiations fail. "Otherwise", he said, "it will be rightly subject to criticism and able to be dismissed as simply party political propaganda". As if. Now, as the First Minister has said, there is no reason why Scotland could not use the pound. But the UK Government and the Bank of England could make life difficult for an independent Scotland, by refusing to be lender of last resort to Scottish banks or setting interest rate policy in a way that damaged Scotland's economy. A consensual currency union would probably involve the Bank of England wanting a say on the size of the Scottish deficit, rather as the European Central Bank is supposed to govern borrowing among EU member states via the 3% Stability Pact.
There is, in fact, a case for Scotland having its own currency, or even adopting the euro, and perhaps the unionists should be careful what they wish for. If Scotland were to achieve full financial freedom, with its own central bank and floating currency, it would knock several tens of billions of pounds off the UK's balance of payments. Oil and whisky exports would no longer be included in the UK national accounts, and since the UK is running the worst balance of payments deficit in 30 years, this could be uncomfortable. Without Scotland's exports it could find itself in an old style balance of payments crisis.
Moreover, as a petro currency, the Scottish pound would likely appreciate against the English pound. There would be pressure for interest rates to rise on Government borrowing south of the Border and fall in Scotland, which would lower Scotland's national debt. This is assuming, of course, that Scotland took on a population share of the UK's existing £1.4 trillion debt mountain. If rUK was playing hard ball about the currency, Scotland would have every right to say, as Ireland did in the 1930s, keep your pound and keep your debts too.
A Scottish currency could then shadow either the euro or the pound depending on what appeared most advantageous. An independent Scotland would have the freedom to choose different currency options, of which models exist throughout the European Union. There is nothing peculiar about this. The many small states that have joined the EU in recent years have differing degrees of separation from the eurozone.
When the Czech Republic and Slovakia went their separate ways in 1993, they started with a common currency, then decided to have separate ones, until 2010 when both started negotiations to join the euro. This is how things happen in international finance, where countries must react to changing circumstances and negotiate with supranational entities like the European Union.
Only in Britain do we find this portrayed, offensively, as one country, Scotland, begging at the door of another. Scotland is being scolded for seeking control of its own affairs by people who don't understand how currencies work. Alistair Carmichael's posturing is particularly egregious since he is a member of a party, the LibDems, who favour a federal reform of the UK and membership of the European monetary system, which involves complex currency and regulatory issues.
But the main reason this debate is offensive is that everyone knows that England would not refuse to allow Scotland to use the pound. Not even Chancellor George Osborne has ever said that it would. Former chancellor, Alistair Darling, chair of Better Together, has said it was "logical and sensible" for there to be a common currency with England after independence. You will not find any economist, politician or serious commentator who has seriously suggested otherwise. The pound is anyway a joint creation by Scotland and England, as was the Bank of England which was, of course, founded by a Scot.
All change involves risk. Most agree the most efficient and least risky solution would be for Scotland and England to keep the pound.
Think about it. English citizens would not want to have to change money when they visit Scotland. Companies would not want to pay transaction costs every time they exported goods to and from Scotland. The banks would not want to have to go to the expense of setting up standalone subsidiaries trading as separate entities. For all these reasons and more, the easiest thing would be to keep the pound.
You could say that this is not independence in the truest sense, and that Scotland would be losing a degree of economic autonomy. As it would if it joined the euro. You might also say that currency union is unstable without political union and that a common currency needs a common government with the legitimacy to raise taxes and redistribute wealth across the union. But these were not the issues under scrutiny last week. It was a playground version of the currency debate reduced to: "Ye canny have the pound so nyah, nyah, nyah."
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