Has Alex Salmond, the master tactician, inexplicably damaged the Yes campaign with his entirely unnecessarily evasiveness – during Tuesday night’s independence debate – over the currency to be adopted by an independent Scotland?
Yes, to share the pound as a common currency may indeed be the best option, but in the event of insuperable objections to this on the part of rUK, why not discuss other options such as an independent Scottish currency?
After all, this so-called Plan B was seriously considered by Mr Salmond’s own panel of expert economists, and an independent currency is successfully used by other small countries such as Norway and Switzerland.
Scotland, with its wealth of natural resources and healthy balance of payments, would surely be blessed with as strong a currency as is desirable. In his obstinate, almost petulant, refusal to discuss this question openly and honestly Mr Salmond, in last night’s TV debate, must have raised quite unjustified doubts and fears among the undecided voters he was presumably trying to convert to the Yes camp.
Finally, the whole question of currency has assumed an inappropriate degree of importance in the independence debate. Yes, a working currency is an essential component of an independent state, but the actual choice of currency should not present a problem.
Are there any examples of prosperous countries like Scotland having difficulty in operating a suitable currency?
(Dr) John Slee
Gullane, East Lothian
On the crucial issue of an independent Scotland’s currency, Alex Salmond dodged the question while Alistair Darling shot wide of the bulls eye. The issue is not whether an independent Scotland could continue to use the pound. Of course it could. The issue is how Scotland’s continued use of the pound would increase its independence. It wouldn’t.
After Scottish independence, the Bank of England would set interest rates to suit rUK’s economy, not Scotland’s.
Sooner or later the situation would arise, therefore, where Scotland needs higher rates, say, to calm a property boom, but rUK needs lower rates, say, to stimulate a sluggish economy.
In that case, the Bank of England would look to rUK’s needs, not Scotland’s. This is exactly what happened in the Republic of Ireland in the run-up to the financial crisis. The value of property there was rocketing at an unsustainable rate, because the European Central Bank, with its eye fixed mainly on Germany, kept interest rates low at 2 per cent.
The result: the Irish property bubble burst, with values tumbling by up to 50 per cent. As long as it remains part of the UK, Scotland’s needs will figure in the Bank of England’s considerations. But when it leaves, they won’t.
So an independent Scotland could keep the pound, but only at the price of losing all control over its own interest rates. How, exactly, would that enhance its independence?
As there seems to be more heat than light being generated on the issue of the currency to be used by an independent Scotland, I thought it might be worth briefly going back to basics on the “pound is as much Scotland’s as England’s” theme.
We know that the Bank of England as an institution would stay with the rUK as the continuator state. Its assets would be allocated between an independent Scotland and the UK: this is presumably what the Yes camp bases its argument on.
However, it is difficult to see how sterling can be classed as an asset for these purposes: a currency is surely only a consequence of the state it represents. It is a reflection of, and flows directly from, the economic make-up of the state it relates to.
After independence, the currency used by rUK would still be called sterling but it would be fundamentally because Scotland’s economy would no longer be a constituent part of its make-up: Scotland’s independence would have fundamentally changed the nature of the pound.
To approach the subject from a different angle: Scotland has indeed been a part of building up the pound’s reputation and strength.
This track record would be reflected in the initial reputation of the new Scottish currency. Viewed from this angle, Scotland would be receiving full value for its contribution to the pound.
Nobody likes change: we all prefer what we are familiar with. I think this is why currency is receiving such a prominent place in the referendum debate.
But the truth is that it is not the currency that is important: we should be discussing wealth. It is the wealth of the nation which supports the currency.
And the importance of the currency is its purchasing power. The almighty dollar’s strength is maintained by the strength of the USA’s economy. If Scotland becomes independent it will rise in the table of wealthy nations while the rest of the UK drops by a few notches.
This is why Westminster politicians argue that there will be no currency union. If Scotland had its own currency it would be a strong currency because it would be backed by Scotland’s wealth.
It is laudable that the Scottish Government’s preferred option is a currency union as it shows that it is not only concerned with Scotland’s future but also the future of the rest of the UK.
However, Westminster seems to be blinded to this by its need to retain control. Perhaps, after a Yes answer in the referendum it may come to its senses.