Iain Gray: independent Scotland’s currency options

The currency Scots will use in the future is one of the main talking points of the referedum campaign. Picture: PA
The currency Scots will use in the future is one of the main talking points of the referedum campaign. Picture: PA
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POUND, bawbee or Scottie … which should an independent Scotland go for? Iain Gray looks at the surreal side of currency, with a warning that the colour of our banknotes does matter

Alex Salmond is hardly the first politician to get into currency trouble. Never mind the eurocrisis, Churchill’s self-confessed greatest mistake was his return to the gold standard in 1924, prolonging depression and leading to the general strike two years later. Harold Wilson was never allowed to forget his ridiculous assertion that he had only devalued the sterling abroad, not the “pound in your pocket”.

That 1967 devaluation has a lesson for today, though. There was then a “sterling area”, covering mainly former colonies. But the devaluation sounded its death knell, because the decision was taken solely in the interests of the dominant, British economy and ignored all others, many of whom simply refused to follow and thus effectively left.

To be in a sterling area with no control over the currency is exactly what the SNP proposes for an independent Scotland. It is no better an idea now than it was in the Sixties.

We can amuse ourselves speculating what an alternative, Scottish currency might be, with the “bawbee” or the “scottie” current favourites, but there is nothing funny about money really.

It can, however, get quite surreal. Alan Sillitoe wrote a great satirical novel about a strange country ruled by nihilists. Among other things, Nihilon woke up one day to find a new currency had been unexpectedly introduced overnight. This is not completely far-fetched. Mozambique more or less did exactly that in 1980 when they abolished the [colonial] escudo and replaced it with the metical, almost overnight.

“Counter-revolutionaries” who had hoarded escudos under their beds were distraught – which was the idea. However, by the time I arrived there as a teacher in 1982, the metical was worthless. It could not be changed into any “hard” currency, and as a result there was nothing to buy with it. Shops were empty. You could go to John Orr store in downtown Maputo, a kind of old-fashioned John Lewis, to find assistants in white gloves staffing row upon row and floor upon floor of empty counters and display cases. Small shops competed for the most artistic way to display local tea, the only item in stock.

Those of us fortunate enough to have access to sterling, dollars or rand had the “Loja Franca” hard currency shop. Smaller than a Tesco Metro, although with more whisky for the diplomatic corps, it felt like a shopper’s paradise.

Teacher colleagues from the Soviet Union took this especially hard. They got one chance to work abroad for two years and be paid in US dollars. They were meant to spend these back home in the GUM hard currency store, but it did not sell the Japanese cameras and German hi-fis they wanted. Unfortunately for them, neither did the country they had been sent to.

I helped a bit when I visited Swaziland, bringing back the odd watch or pair of Ray-Bans to order, and they paid me in cigarettes they got from their embassy, and which otherwise cost me hard currency.

Most Soviets, though, waited until their final return home, when they would rush off the Aeroflot flight during a stopover in Yemen and splash two years of earnings on western consumer goods in the duty-free, then lug it all back on to the plane.

I have never been to Aden airport, but I used to imagine it as a strange supermarket sweep at the end of the consumer universe.

Oddly, there was no real black market in currency in Mozambique, unlike Peru in 1990, where men waving calculators lined the main streets of Lima. When I arrived they would give you 5,000 inti for a dollar. When I left four weeks later, it was 25,000. Now that is inflation.

About the same time, the Brazilian finance minister was asked in a press conference how many cruzeiros a dollar was worth. “All of them,” he replied.

The worst place I ever exchanged dollars was in Bukavu in what was then Zaire, when it was hosting one million Rwandan refugees, many of whom were genocidaires – thought to be guilty of mass killings. The transaction “desk” was the bonnet of a wrecked car with every note slapped down drawing a larger and larger crowd. I didn’t wait for a receipt.

When it comes to currency weirdness, though, nothing can compete with 1980s Angola. This was a country blessed with oil and diamonds, but all of that disappeared into funding an interminable civil war. In an act of bravado, the government had frozen the “official” exchange rate of the kwanza, destroying its value completely.

As a result, people had found a convenient alternative – tins of Heineken beer. A tin or two for a small purchase, up to a lorry-load for something major, this was the hard currency in circulation, which posed a problem for the Oxfam representative I was visiting. Trying to open an office in Luanda, he had had to convert his entire budget into beer, which made his accounts tricky. It had an unexpected benefit, though, because his furniture was stuck in customs, so he and his wife had furnished their flat with bed, chairs and a table constructed from crates of Heineken he was storing to pay for things.

I was there to assess what salary he should be paid, which was a challenge.

In a final quirk, the Angolan government allowed their citizens to pay for air travel in local currency, meaning it was essentially free. Internal flights had all the ambience of an African bus, complete with livestock. But you could even buy two international flights a year. As a result, a round-the-world air ticket cost two six packs of Heineken. Women in the (illegal) market would catch a Varig flight Rio to stock up on things to sell, and people living in Luanda, where there was not even a working bar, would nip over to Lisbon for a New Year party.

The closest thing we have seen to a nihilist regime was probably the Khmer Rouge in Cambodia. They simply abolished money, along with education, spectacles, toothbrushes and privately owned cooking pots. Yet even they relented and printed new currency just before they were ousted by the Vietnamese army.

Fleeing KR blew up the warehouse where the new notes were stored, and the Vietnamese arrived to find the streets littered with riels, which Cambodians were collecting to burn for heat.

This has all changed, of course. Mozambique floated their currency and the shops filled up with goods, though no-one could afford them. The eldest daughter of Angola’s president made Forbes rich list this year with an estimated 
€1.4 billion of real hard cash. US dollars circulate freely in Cambodia.

So what does this have to do with the price of mince, in bawbees? Even I hesitate to suggest the SNP will take Scotland to the wilder shores of currency meltdown. Yet these are cautionary tales, showing that currency matters – and it can get very weird.

Dennis Canavan, a former Labour MSP now a prominent supporter of the Yes Scotland campaign, is wrong to dismiss the current debate by saying Scots are “more concerned about the welfare state… than the colour of banknotes”.

The colour of our banknotes does matter, and so does the manifest failure of the SNP to come up with a credible plan for our currency.

• Iain Gray is Labour MSP for East Lothian.