Brian Monteith: Independent Scotland needs own currency

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I am tempted to say game over. On Wednesday, the governor of the Bank of England, a Canadian of great achievement, supreme technical knowledge and imperious judgment – certainly by comparison with the likes of Alex Salmond, John Swinney, George Osborne or Ed Balls – came to Edinburgh and gave a dispassionate speech that laid waste the SNP’s arguments about an independent Scotland using the pound.

Let me be quite precise. Carney did not say Scotland retaining the pound Sterling after independence was impossible. He explained that if that is what his political masters decided – by negotiation between Westminster (his bosses) and Holyrood (his potential clients) then technically it would be feasible.

Nobody challenges this, for it is as true as night follows day. If Westminster agrees to a currency union then it can and will happen.

Nor did Carney make any pronouncement about the pros and cons of Scotland being independent or staying in partnership with the rest of the UK. He studiously avoided taking sides.

All the more then that his technical clarifications were a hammer blow to the SNP vision that everything will be all right on the night, that independence will mean nothing really changes.

Carney made it perfectly clear that if there is to be a currency union using the pound – which means the pound will be the legal tender by which we conduct our trade, pay our wages and settle our debts from John O’Groats to Lands End (as we do now) then it will require any Scottish Government with its new-found independence to give up a significant amount of freedom that it had just won.

The question he provoked was simply this: what’s the point?

Before I answer let me put a few myths to the sword.

The first is that Scottish banknotes are not legal tender. Much as I love them they are nothing more than marketing ploys to promote the three Scottish banks that are in all circumstances owned by either British or Australian shareholders. In the case of the Royal Bank of Scotland and Bank of Scotland, they are owned by the UK taxpayer – which means the majority share is English.

The Scottish banknotes are mere affectations of the banks that give us a sense of identity. They are only possible because the banks purchase the equivalent value of Bank of England notes before releasing their own notes into circulation. No person is, however, legally obliged to accept them as tender in any part of Britain, not even in Scotland. That we do, and that some apocryphal London taxi drivers do not, is simply a matter of choice.

What is perfectly clear is that whatever happens to Scottish banknotes the likelihood of them being remaining acceptable in any shape or form in England after independence is as likely as a bacon butty being welcomed in a synagogue or a mosque. Just forget it.

If an independent Scotland manages to negotiate retaining Sterling as its currency the Scottish banknotes will become as worthless in the UK as the Irish pound was after 1922 – except in a few Irish nationalist bars in north London.

This, of course, may not matter to those people that never go south of Berwick or Gretna, fair enough, but let’s not pretend current circumstances will persist – they will be appreciably worse.

The second myth is that a Scottish Government will be able to influence its own economy to the extent that any independent country with its own currency would be expected to do. After all, surely the point of independence is to act in Scotland’s interests and not worry about unemployment in Merseyside or property inflation in Guildford?

There will be no independent Scottish currency, it will be a common currency and that means the levers that influence it – the issuing of debt, notes and coins and the setting of interest rates and taxes – will be set by a committee that is in the UK’s favour by a ratio of at least 9:1.

This means that if the price of oil goes up and creates inflationary pressures in Scotland’s oil dominated economy (as would be expected) then the interest rates to fight that pressure would not go up – because the deflationary pressures of expensive oil in England would require interest rates to go down. The result would be the wrong interest rates for Scotland creating an economic bubble that would cause great distress when it explodes.

This is precisely what happened to Ireland from being in the euro during its inflating property bubble. The Germans reduced interest rates when Ireland required higher interest rates. The result was mass Irish unemployment and real wages cut, not frozen, by 10 per cent. It is a recipe for disaster.

Why seek independence only to then give it up? In fact Scotland – without any access to influence at Westminster will have less authority in managing the pound after independence than it has now. After independence politicians will only look to the English not the UK electorate.

Thank you Governor Carney. The question was simple. What’s the point? The answer is as easy. Without a separate Scottish groat there’s no point.