Monday, 11 August 2014

Of course Scotland can use the (Scottish) pound



The Scottish currency question is in the news again as Alex Salmond insists that an independent Scotland would use the pound "come what may". At Forbes, Tim Worstall and I both look at what this might mean in practice. But we have slightly different views....
"My colleague Tim Worstall argues correctly that an independent Scotland would still be able to use the pound if it chose. Just as the US has no power to prevent Panama, Ecuador and even Zimbabwe using the US dollar as their currency, so the remainder of the UK would have no power to prevent an independent Scotland using the pound. But equally, independent Scotland using the UK pound as its currency without any form of monetary union with the UK would have no control whatsoever over monetary policy. In Zimbabwe this is a good thing, since the last thing anyone wants is the government to have any control of monetary policy. But Scotland is not Zimbabwe: the whole point of the independence campaign is that Scotland should be able to manage its own economy. Using another country’s currency is dependence, not independence. 
"But Tim has missed something....." 
Read on here.

Related reading:

Scotland and the banks
Scotland's currency conundrum
Scotland's currency options - NIESR
Scotland's future: your guide to an independent Scotland - Scottish Government

4 comments:

  1. Is this not very similar to the Irish pound which worked very well until it was replaced by the euro for political reasons?

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    1. Ireland had its own currency with a currency board after independence, which did work pretty well. I've suggested that as an option for Scotland.

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  2. Its conceivably possible that English banks could simply have branches in Scotland. That is a simple scenario right there with Scotland still using the pound. But its not quite true that there is nothing that English monetary authorities could do to stop Scotland using the pound - as they could in principle make it terms of a banking licence not to do business with banks in Scotland or they could ban English clearing systems allowing access to banks operating in Scotland. And if a Scottish clearing system did come with some kind of interface with the English clearing system they would then have to come up with a different way of settling post clearing debts.

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  3. The SNP's bind over currency is eruditely analysed by James Stafford @ http://blogs.lse.ac.uk/europpblog/2014/08/12/the-rejection-of-the-euro-has-left-the-snp-caught-between-competing-visions-over-an-independent-scotlands-future/. He points out that once the notion of Scotland being a ‘post-sovereign’ state in a confederal Europe was undone and the difficulties with the Euro became apparent, the SNP was obliged to disavow its enthusiasm for adopting that currency and that left it seeking a formal currency union with the rest of the UK. Stafford then discusses the difficulties with such a currency union, not least that Scotland's relative small size suggests it could not be allowed to set terms for the other party to such a union.

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