Saturday, 9 August 2014

Scottish Independence Referendum and the Currency Debate.

There seems to be a lot of nonsense being talked about the Scottish currency in the event of a vote for independence so I might as well get in my tuppence worth (assuming the new currency will have tuppence as an expression of currency). This is the situation as I understand it but I don't claim to be an expert. It's not really as difficult as the NO campaign would have us believe.

Plan A.
We keep the pound in a currency union with the remainder of the UK. The benefits of this in terms of transaction costs have been explored at some length but I have been asked to try to explain what transaction costs are.
For the most part they are that portion of your money which is stolen by the money changers when you convert from one currency to another, just as they do when you go on holiday but on a much more massive scale when you're buying and selling between two countries. In a currency union these costs would be eliminated.
The drawback is that you lose control of your monetary policy (the amount of money circulating in your economy) as a lever of policy. That means we will only have the same control over our monetary policy as France and Germany have in their particular currency union and they manage well enough. That doesn't seem to be all that scary because the economic interests of Scotland and the rest of the UK (except London) are broadly similar. We would retain control of our fiscal policy (the power to tax and spend according to our own social priorities).

Plan B.
We keep the pound without a currency union. Because the national debt has been incurred by the UK in support of the united currency, if we are, as the NO campaign seems to think, effectively kicked out of the united currency it seems unlikely that we would be required to assume part of the united currency's accumulated debt. If we don't share the asset it is grossly unreasonable to ask us to share in the liabilities of the currency union. The UK Government have already conceded that it would accept responsibility for the national debt should we vote YES, but we understand that this was only to re-assure the financial markets to keep their own credit rating up. That's not the Scottish Government's preferred option. They would rather have a currency union and accept a share of the debt.
We are told that if we do not share the debt then borrowing on the world financial markets would become difficult, but we already know that Scotland would have a triple A rating. The markets have said so. Even if we were to renounce the debt, interest rates depend on how much risk is involved for the lender. There is little risk in lending to an oil rich, stable democracy with a massive balance of payments surplus. International finance are no fools and they will recognise our renouncing of the UK's debt burden as a one off in peculiar circumstances and since the UK government has assured markets that the debt will be repaid they wont worry about lending to Scotland. It's just another scare story.
All of this is made clear in the Scottish Government's White Paper. It's not called Plan B but it is, and it's there for anyone to see who's interested and geeky enough, but lazy, bought and paid for journalists can't be bothered to look so they keep shouting that there's no Plan B. It's just another scary lie.
They like to talk about a Plan B because it implies the possible failure of Plan A, so Salmond will never refer to it as Plan B. He's old and wise enough to realise that Plan B is a term coined by the NO campaign to imply failure of the best option and a degree of uncertainty about planning itself. He's a consummate politician and since Plan B is a NO campaign term he will not accede to their terms. He knows that if you control the terminology then you control the debate and he will end up debating on the opposition's terms. So he will never use the expression 'Plan B' however desperate the NO campaign are to get him to utter the words. Language is important and all of us who are old enough remember the cheer that went up in the house of commons when Thatcher after years of calling it the Community Charge eventually used the words 'Poll Tax'. It was the beginning of the end.

Plan C
We use our own currency. However much I would like that to happen it seems unlikely, but if push comes to genteel jostle then it's got to be done. It may involve a longer wait for its full benefits to show but it'll be worth it in the long run.

That's my offering. Good luck with it.

1 comment:

George Mackin said...

Power to your pen, comrade. For a lot of reasons i can not see myself voting SNP and I feel disenfranchised at the moment for lack of choice.