SNP economic guru says short-term switch to a new currency would cause 'chaos'

There would be a “risk of capital flight” with people, businesses and investors moving money, jobs and investment out of the country, he said.

However he also said all the problems could be "entirely avoided" under the SNP’s new plan to ditch the pound “as soon as practicable” after independence.

He called the revised policy “so positive and important for the economic case for independence” and said the debate on currency was “now done”.

The Growth Commission, the SNP’s economic blueprint for a new country, recommended a gradual approach to a new currency, angering many of the SNP’s own supporters.

It said an independent Scotland should focus initially on cutting its deficit, reining in public spending and keep the pound for at least a decade before considering a new currency.

It also said any switch should first have to meet six stringent tests on trade, economics, central bank reserves, public opinion and divergence with the rest of the UK.

The plan was condemned on the left of the Yes movement as a recipe for more Tory-style austerity, and prompted calls to drop the tests and the pounds as soon as possible.

Delegates at last weekend’s SNP conference voted to keep the six tests, but backed a fast-track timetable to stop using sterling “as soon as practicable.”

READ MORE: SNP members support new currency as soon as practicable

Writing in the National newspaper, Mr Wilson said the Yes campaign of 2014 had backed a currency union with sterling because a quick shift to new currency was so problematic.

He said keeping the pound avoided “capital flight happening in real time before, during and after the campaign” and would-be investors being deterred from creating jobs in Scotland.

He said: “If people, businesses, investors and others felt a new currency would be set up in the short term the risk was they would move money, jobs and investment in case there was a

devaluation. You can imagine the political and economic cost that would be paid.

“Quebec suffered this in a major way in its referendum [on sovereignty] and the jobs and investment have not fully returned.”

He said a quick move to a new currency could also caused “uncertainty for people over what would happen to their income, pension, mortgage and savings if held cross border.”

He said: “If it is anticipated that there is to be a very early move to set up a Scottish currency, then the immediate risk is either of devaluation or the opposite.

“If it was to fall, say, 10% against the pound then it would mean that mortgages owed in pounds got 10% more expensive. Goods bought from outside Scotland would become more expensive overnight.

“If it was to rise by 10% then it would mean that pensions or wages paid in sterling dropped by 10%.

“The inability to forecast what would happen with any certainty, and the risks to everyday matters of such import, would have led to a sense of potential uncertainty, risk

and chaos.There would be winners and losers, but people would not be able to assess where they stood.”

He went on: “A further issue is the cost of borrowing for public services investment. If you ask the world’s savers to fund your public borrowing at a time when you are yet to get it on a sustainable footing and then add the risk of currency changes it will be very expensive.

“This will harm your ability to fund public services and pass on expensive debt to the next generation. We can try and wish all of these issues away. They are complex, they are difficult, but they are reality.”

READ MORE: Derek Mackay accused of being in ‘full retreat’ on new currency

He said these issues were why only one in 20 voters want a new currency immediately.

“Going into a referendum campaign with such a formulation would be a losing ticket that would also provide real risks to the economy now. It makes no sense at all,” he said.

However he said the SNP’s new position - to back a new currency in principle but only after meeting six rigorous tests and subject to a parliamentary vote - was so much better.

He said: “The SNP policy is that Scotland, like almost every other country in the world, will have its own currency. But not until it is ready, fully prepared and it is in the positive balance of interests of households and businesses here.

“Conference approved the six tests that are to determine just that and to decide when it is in the practicable best interests of the economy and society to make the move.

“When it is practicable it will be done. So that debate is now done.”

Asked which of the problems associated with a short-term switch to a new currency could be entirely avoided by a medium-term switch, Mr Wilson told The Herald: "All of them once the tests are hurdled. All can be prepared for."

Tory MSP Murdo Fraser said: “Scots will be terrified at the prospect of an overnight 10% increase in the cost of mortgages and goods from across the border.

"The SNP’s agreed policy is for an independent Scotland to create its own currency as soon as possible, despite the catastrophic effects Mr Wilson details.

"The First Minister and her finance secretary have been floundering around on this issue all week – this intervention from a senior SNP advisor is yet another blow to their credibility.

"This devastating critique highlights the eye-watering cost of independence to ordinary people, no wonder Nicola Sturgeon wants to downplay it."

Scottish LibDem constitutional affairs spokesperson Wendy Chamberlain said: “Andrew Wilson has succinctly summarised the array of serious problems that a quick shift to a new currency would bring.

Unfortunately for him, the SNP are intent on bringing that about - no matter the ‘uncertainty, risk and chaos’ he warns of.

“People are sick of politicians playing with their futures and their finances for ideological aims. The SNP have been trashing their own independence blueprint issue by issue and the currency palaver is just the latest in a long list of misjudgements." 

Former Labour MP Pamela Nash, chief executive of the anti-independence group Scotland in Union, added: "The SNP has chosen to fast-track its plans to scrap the pound, making the prospect of devaluation very real in an independent Scotland.

“This is the devastating reality of the SNP’s dangerous plan. Breaking up the UK will immediately put mortgages, salaries and pensions at risk, which is why an increasing majority of people of Scotland want to remain in the UK and keep the pound.”