Scottish independence: SNP still cannot answer the currency question that should worry people with a mortgage – Alex Cole-Hamilton MSP
During a TV debate ahead of the 2014 independence referendum, Alistair Darling snookered Alex Salmond when he said “any eight-year old can tell you the flag of the country, its capital and its currency... but you can’t tell us what currency we’ll have. What’s an eight-year old going to make of that?”
It was seen as a turning point and the Yes campaign just couldn’t seem to get past it as a question thereafter. Fast forward seven years and even now, as the SNP marches towards a referendum they hope to hold in just over 18 months and the question still dogs all those who advocate Scexit and the break-up of the UK.
Just this weekend, delegates from Dalkeith took a motion to SNP conference that would have answered that question. The motion called for the establishment of a new Scottish Central Bank immediately after independence, with the power to mint, print and distribute a new Scottish currency – a Scottish pound. Reader, they bottled it. SNP members voted to delay the proposal and called for greater clarity.
Given that the UK government has ruled out a formal currency union and it would take years to join the Euro, a new currency or informally using the UK pound like some countries use the US dollar represent the only two viable options available to an independent Scotland from day one. Both come with significant and irrefutable drawbacks.
Let’s take sterlingisation, the official policy of the SNP leadership, to keep using the UK pound after independence but without a formal currency union. This comes with several major problems – firstly, there would be no possibility of Scotland re-joining the European Union whilst using the currency of a non-member state.
Scotland would also lack the significant monetary leavers that come with a standalone currency. But above all that, if you’re using someone else’s currency, you can’t print more of it to get you out of trouble.
Central banks which control currency have the power to expand the money supply to stimulate the economy, this has been key to the UK getting through both the global financial crash and the pandemic. That wouldn’t be available to an independent Scotland using the UK pound. In other words, we would be unable to respond to any future economic shock.
This is perhaps why a growing wing in the nationalist camp favours the solution proposed by the Dalkeith branch. Theoretically, The central bank of an independent Scotland distributing a new currency could expand the supply of money if times got tough, and it could borrow large amounts if it had built enough credibility with the international bond markets.
But a new currency causes its own problems. Firstly, opinion polling shows a significant dip in support for separation if people think that means giving up the UK pound. But far more importantly, it creates significant exchange rate risks for homeowners having to meet repayments on mortgages tied to sterling, for businesses that have sterling loans, and for companies that export goods south of the border.
The pro independence side still need to answer Alistair Darling’s question of 2014, but by so doing they may well scare off the very people they are trying to win over.
Alex Cole-Hamilton is Scottish Liberal Democrat MSP for Edinburgh Western