Comment: Currency concerns require sterling effort

EARLIER this year, the CBI published an excellent paper on the issues that business would like the Scottish Government’s white paper on independence to address. Among them, the first concerned currency.
Terry Murden. Picture: TSPLTerry Murden. Picture: TSPL
Terry Murden. Picture: TSPL

The CBI paper was followed this month by a list of 177 questions.

Currency featured again, and the clock is ticking for the Scottish Government to come up with the answers before its white paper is published in the autumn.

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The CBI’s director general, John Cridland, waded into the debate yesterday, wanting answers of his own on how a “currency union” between Scotland and its divorced partners in the UK would actually operate.

It is one of the more important issues that needs to be resolved if the independence debate is to shift from jingoistic flag-waving and finger-pointing and gather some meaningful traction. What the public, and businesses in particular, want to know is what currency would be in use in an independent county, what value it would have and how stable would it be.

The currency issue affects inflation-targeting, the setting of interest rates, the exchange rate, and so on, and therefore are central to the economic management of the country.

The Scottish National Party wants Scotland to retain the pound and the Bank of England to dictate monetary policy, but it would have fiscal independence and would set its own taxes. The SNP’s argument is that Scottish resources, such as oil and gas, would underpin the UK’s balance of payments.

But critics say this is a recipe for instability because two governments running different economic policies would inject too much unpredicatility into sterling. It has been noted that similar currency unions have failed, from the debacle of the European exchange rate mechanism in the early 1990s and the collapse of the Czech-Slovak agreement after just 33 days, to the latest problems over the euro.

Moreover, with Scotland making up just 10 per cent of the UK economy, it would arguably be a more unbalanced currency union than the eurozone, which at least has 17 governments sharing the load.

And just what would a currency union mean for independence if the Bank of England was dictating interest rates, inflation targets, regulation, etc?

Perhaps it is no surprise that there are growing pressures for Scotland to have its own currency, as favoured by the Green party.

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But therein lie even greater uncertainties over a small country’s ability to fend off the pressures of international markets at times of economic stress.

There is still a long way to go in this debate and it is for the SNP to come up with a workable solution if the currency issue is to be resolved.

No accounting for how retail sales add up

AS ONLINE retailing gathers pace, a growing dilemma is how companies report sales through the stores and those through the internet.

This is an important question for the retailers themselves, for investors and those analysing the sector for whom forecasting is critical.

Internet sales are big business and will soon account for £1 in every £8 spent by shoppers.

But online can be used to cover for weak performance in the stores. And as online sales rise, so do the costs of distribution, though not all those distribution costs relate to internet sales.

One for the accountants to mull over.