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- THE £ - CURRENCY
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- SCOTLAND'S FUTURE
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Scottish Currency Independence: The £ - Currency
DEVO-MAX / FULL FISCAL AUTONOMY ( Part 1 )
What it is: Scotland stays in UK, keeps the pound properly. Bank of England stays your central bank, lender of last resort, sets interest rates, prints notes. Scotland raises most of its own tax and runs most domestic spending. Defence and foreign affairs stay at Westminster.
Currency: No change. No risk. You keep sterling as a full member of the monetary union. No exchange rate with England, which is still Scotland's biggest market by over 60%.
Trade off: You don't control interest rates. Rates are set for London and South East, not Scotland. And if GERS shows a big deficit, devo-max with no Barnett means tax rises or cuts - you can't print money.
INDEPENDENCE - THE CURRENT PLAN
2014 plan: Formal currency union - Scotland and rest of UK share pound and Bank of England. Westminster said no - both Tories and Labour said "a currency union is not going to happen" because it needs banking union and fiscal union.
Current SNP Scottish Government plan - Building a New Scotland 2022-23:
Sterlingisation
Scottish Pound: Move to a new Scottish pound "as soon as practicable" when three tests are met:
1. Scottish Central Bank has credibility
2. Foreign exchange reserves enough - briefing papers talk about £40bn plus needed
3. Scotland fiscally sustainable
On Currency Day sterling deposits would be converted to Scots pounds. Taxes would have to be paid in Scots pounds, that is how you force it.
Pros
Scotland gets full monetary sovereignty eventually, can set rates for its own economy, can devalue to help exports, can join EU with own currency.
Cons economists raise
During Phase 1 you use sterling but with no central bank, no lender of last resort. Like Panama using US dollar. If banks wobble, who bails them out? • You need to build huge reserves while running a deficit - where from? • When Scottish pound launches it will float. Markets will price Scotland's 11.6% deficit and oil volatility. Likely weaker than sterling at first - good for exporters, bad for importers, mortgages, inflation. • Border with England becomes a currency border. Businesses face exchange costs and hedging, like Ireland does with UK.
Other options on paper - Euro immediately (needs own currency first), peg to sterling like Denmark pegs to Euro - but official policy is sterlingisation then Scottish pound.
Plain English
Devo-max = pound stays safe and boring, but monetary policy stays in London.
Independence = pound stays for a bit, then new Scottish pound that will float. You get control eventually, but you have to get through a risky transition no country Scotland's size has done while running a double digit deficit.
That is why even pro-independence economists say GERS doesn't tell you about independence - because independence would have to change tax, spend and currency in a way devo-max wouldn't.
Welcome to Our WorldSCOTLAND'S FUTURE - WHAT ARE THE WHITE PAPERS?
If Westminster won't give us a Section 30, we have to look beyond Westminster.
But when the world does start to listen, it will ask one question: what is your plan?
The White Papers are the plan on paper.
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