#IndyRef Myths Dispelled! Ye’s Cannae have the Pound!

As the referendum on Scottish Independence approaches fast I thought I’d best jump on board with the #IndyRef thing. My aim is, in addition to my other (somewhat sporadic) postings on this blog, to weekly put up a brief post dispelling one of the many Project Fear myths about an independent Scotland in terms most basic. I shall try my level best to avoid the maelstrom of figures and polls that fly about this debate all in seemingly different directions. I shall try to put the simple facts across in a manner that provides as little confusion as possible. In essence, I shall put across the layman’s common-sense answers to the Project Fear myths.

With any luck, I shall get sixteen such posts in before the Referendum leaving me a whole day to go to town before the polls open on Thursday morning. So without any further delay, let me dispel #Indyref myth number 1:

Ye’s Cannae Have the Pound!

Our Currency for 307 Years and Counting

This is the Treasury’s favourite so far, it would seem. Being told that an independent Scotland could not have the pound is something that, quite rightly, raises concerns for the average Scot; the currency in our pocket is something that we take for granted and is vital for many aspects of day to day life, brining the certainty of that into question brings into question everything from the weekly groceries shopping to the trading of goods internationally to the national budget.

It’s no surprise then, that when the Treasury decided to flat out tell us that an independent Scotland would not be able to use the pound, the ordinary people squirmed a little and begun to have second thoughts. Questions were raised and backup plans discussed such as a new Scottish currency, the strength of which could not be guaranteed, or, Gods forbid, the Euro. I will admit that even I was sceptical and wanted to know if there was a backup plan; I even wrote to my local MSP at the time, Johann Lamont, though that was simply a waste of good paper and ink.

However, there doesn’t need to be a backup plan at all. When Alex Salmond, Nicola Sturgeon and the rest of the SNP, whether you love or loathe them, tell us that “the Pound is as much Scotland’s as it is the rest of the United Kingdom’s”, they are quite right. Scotland at present trades in the Pound and even has three banks permitted to mint notes in Sterling. The previous currency of Scotland, the Pound Scots, was officially replaced in Scotland by the Pound Sterling by the Act of Union 1707 to become the currency of the Kingdom of Great Britain (later the United Kingdom of Great Britain and Ireland and then the United Kingdom of Great Britain and Northern Ireland).

The idea that the currency of the Pound Sterling belongs solely to HM Treasury and the Bank of England is laughable. Even should the idea of a formal currency union be rejected by London, which is also quite unlikely, there are still ways about it.

Scotland could quite easily do what the likes of the Isle of Man, Guernsey and Jersey do – that is have a currency called the Pound, or some derivative thereof, and peg its value in some form to GBP. As a matter of fact this has been done quite recently; when Ireland declared its independence, it used an Irish Pound pegged to the Sterling’s value, this currency lasted Ireland well before it adopted the Euro. Scotland could quite easily do the same, although I shan’t speak of joining the Euro – that’s somewhat shakier ground, I fear.

But let’s focus on the main question of a formal currency union between rUK and an independent Scotland, after all, that’s what the SNP are banking on and, let’s face it, the best option and the one most would probably back following a “yes” vote. It’s also the one argument that the Treasury and George Osborne seem most desperate to avoid actually having.

Quite simply put, the idea of rUK rejecting a formal currency union flat out is ridiculous, for this we need only look at two arguments; cross border trade and oil.

Scotland and England, in case you haven’t noticed yet, share a land border and share a great deal of trade. England is Scotland’s biggest source of imported goods, whilst Scotland is England’s second biggest source of imports. In conjunction with this, a large number of companies trade and operate across the border on a daily basis, from things as big as companies trading goods en-masse to English folks popping over the border for a Scottish plain loaf.

The reason all of this flows so seamlessly is because at both ends the same currency is being used. People working between the two countries need only carry one set of bank notes, don’t need to worry about conversions and exchange rates. The Scottish Government have quite sensibly chosen to respect that and have vouched for a formal currency union with rUK, following a “yes” vote, to continue to facilitate this trade. The UK Treasury, however, has decided that this simply won’t do and would jeopardise trade, money, and jobs and likely causing massive damage to both economies, simply because it doesn’t like the idea. It’s a rather spectacular case of the UK government saying, “we don’t care if it kills us, as long as it hurts you too!” Not a terribly mature move, but what else can one expect from politicians.

But the biggest argument against the UK’s position on this is quite simple: Oil.

The currency of a nation is only as strong and valuable as the economy behind it. Currently North Sea Oil and Gas contributes a sizeable amount to our Treasury’s coffers each year and has done for the past few decades. The sheer volume of oil in the UK’s territorial possessions has been a major factor in the strength of the Pound compared to other global currencies, especially since the advent of the Euro, which fall all its failings, continues to remain a strong currency and has, in general, increased considerably in value over the past few decades.

Should Scotland become an independent nation, it’s territorial waters would give it 93% of the total North Sea Oil and Gas holdings currently under UK control. Should the UK reject a formal currency union with Scotland, Sterling would no longer have its large oil wealth behind it. The shock of such a sudden removal of so valuable a resource as oil would do a great deal of damage to Sterling. Meanwhile, should Scotland have all that oil to itself, what ever currency it should chose to take would benefit enormously.

To put it in as few words as possible, whilst outright rejection of a formal currency union would perhaps cause an upset in Scotland, it would likely be fairly small and short-lived. The effect on the rest of the United Kingdom, however, would not be so pleasant and would lead to a major economic crisis. A no to a currency union would definitely hurt rUK much more than it would Scotland.

In summary. The idea that Scotland could not have the Pound following independence is quite ridiculous and poorly thought through.

#IndyRef Number One: Busted.

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2 comments

  1. The marginal resource that they are so keen to make sure that we don’t take with us should we vote “Yes”? The messages coming from the BT and Westminster lot are quite contradictory here. First they tell us that oil is marginal and won’t contribute enough whatsoever to supporting an independent Scotland. Then they tell us that the lines may be redrawn to give rUK a bigger share of that oil they told us was so worthless to begin with.

    And why would a currency union be bad for an independent Scotland or the rest of the UK? An established currency, not being broken up at all. Two firmly established trade partners not having their trade disrupted at all. Two neighbouring countries with people from each working over the border on a daily basis not having their lives disrupted by the need to change currency at all.

    Granted it isn’t a perfect solution, but neither are any of the others: The Euro is a mess, a newly created Scottish currency may not be worth much to start with due to the inevitable uncertainty that would surround it. There are problems with each option.

    Personally, I am not overly keen on a permanent use of the Pound formally, given the state of the UK economy, however, it is, in my opinion, the best starter option. From there, Scotland could have a reasonably stable economic transition to independence and could then choose to change currency or whatever.

    A nice read on the FT covers this quite nicely.
    http://www.ft.com/cms/s/0/8bf832a8-b984-11e3-b74f-00144feabdc0.html#axzz33wyz7i2I

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