LES Reid says in his letter of 16 November: “an independent currency is they only policy which makes economic sense”. In principle he might be correct but let’s look at it from the SNP’s point of view.
This approach involves creating your own central bank and converting your existing currency to new. This means converting the deposits of individuals, businesses and public funds to the new currency. Scotland runs a massive fiscal deficit (£12.1bn, 8.3 per cent of GDP in 2012-13 using the SNP’s most optimistic oil revenue figures) and consequently has an enormous borrowing requirement. The combination of a new country, new currency and large borrowing requirement would almost certainly lead to a swift and substantial devaluation of the new currency resulting in financial loss for all those forced to convert. Foresight of this would suggest a massive flight of funds ahead of conversion with a resultant collapse, or near collapse, of the banking system. The spectre of this would leave the banks little choice but to flee for safer shores ahead of the event. Hardly a vote winner.
To create a new currency it helps a great deal if you have a fiscal surplus, a balanced budget, little or no national debt and a credible economic plan going forward.
The SNP has none of these; its economic plan is to increase borrowing.
A currency union (formal or otherwise) as proposed by the SNP looks almost attractive by comparison. It would have left Scotland without control of her money supply or interest rates and fully exposed to the type of financial woes which have engulfed Greece, Ireland, Portugal etc. The SNP currency union proposals were and are a reckless act of desperation but what other options does it have?
Dr Duncan McKenzie, via email