PROFESSOR Joseph Stiglitz predicts that the UK would abandon resistance to a sterling currency union with Scotland, even though the Government of the UK and the main political parties at Westminster are united in professing opposition to such a structure ("UK will cave in on sterling pact, claims SNP expert", The Herald, August 21).
While Prof Stiglitz, as well as Alex Salmond, may be right to suppose that, after an eventually positive independence referendum vote, UK self-interest will bring about a change of heart, one factor, which perhaps they both underestimate, may ironically confirm the UK in its stance. This factor is the financial disciple required of all parties to a currency union. As shown at page 32 of the June 2014 report by the Chartered Institute of Public Finance & Accountancy, entitled Scotland's Future in the Balance, the respective projected shortfall in public revenue for the fiscal year 2016-17 is 11 per cent for the rest of the UK and 6 per cent for Scotland. Consequently, any plausible rule of fiscal discipline will have to exempt the UK. While deft wording of the rule may serve to disguise the anomaly, the very existence of the rule will expose the parlous state of the UK's finances.
Roderick Dunnett,
32 Northampton Square, London.
IN the stushie about the currency, it is said that the problem with "sterlingisation" is that there would be no lender of last resort in the event of a bank failure. That is not correct: the Bank of England (BoE) holds £663 billion of essentially liquid assets (UK Treasury bonds, shares, foreign currency, gold and so on).
In the event of independence, we can reasonably expect the Scottish treasury to be credited with a share of these assets on a population basis, since Scots have made that kind of level of contribution in the build-up of those assets. (Even though the UK bonds were purchased as part of the quantitative easing exercises, equity would require that element too to be similarly shared.) Scotland's share would amount to some £55bn. It could be held in the BoE "on call", or transferred to a Scottish central bank. Either way, there will be more than enough assets available to repeat the whole of the bail-outs of RBS and Lloyds (£50bn).
Of course, since RBS clientele is now predominantly English-based, and BoS is only a part of Lloyds, one would also expect the BoE to be prepared to make a major contribution too. Lender of last resort? There is no problem.
James McKelvie,
2 Waterside Gardens,
Carmunnock.
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