Jim Sillars: The cost of currency union is far too high

Bank of England governor Mark Carney fFirst Minister Alex Salmond at Bute House . Picture: David Cheskin/PA Wire
Bank of England governor Mark Carney fFirst Minister Alex Salmond at Bute House . Picture: David Cheskin/PA Wire
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We didn’t need Mark Carney, governor of the Bank of England, to tell us what we already knew – a currency union with England (what it would be, with apologies for the reality to the Welsh and Northern Irish) would mean transferring back sovereign power over Scotland’s economy to London.

A number of Yes supporters, not only members of the SNP, have been upset by my attack on the currency union, saying it aids the No side. They don’t need anyone’s aid. That policy is deeply flawed, and the SNP administration’s stubborn defence of it has given what Margo calls the Abominable No the easiest target they have had in the referendum debate. In the case of Scotland and England, it will take agreement to create such a union and such a union has consequences for both of them.

For a Scotland that has just won its independence, it means the Bank of England would be the lender of last resort for both Scotland and England. That in turn means that the BoE, and the government it represents, which is the English one, would want a say in the Scottish government’s budget to ensure that it did not threaten the need for a bailout at some time. That no bailout would be likely would not matter. Those who draft these agreements want belt and braces reassurances

A currency union might seem technical but its principles are clear. Martin Wolf, the economics writer, pointed out in the Financial Times last week why England could not enter such a union. Whereas the big partner England could cover the losses of the smaller Scottish partner, the five million Scots could not cover the losses of the 55 million down south. That means a currency union would carry only a one-way risk – for England; so to minimise that risk he pointed out that the BoE would need to impose “fiscal and financial discipline” on Scotland’s budget. In his view it wasn’t worth the hassle to the English. For the Scots he had this to say: “If I were Scottish, I would not dream of accepting such an arrangement because it would be far more unequal than the present one.” Lesson: small tails do not wag big dogs.

The key body inside the Bank of England is the Monetary Policy Committee, which controls interest rates. John Swinney, years ago, summed up SNP criticism of that MPC: “It does not take into account the needs of the north of England or Scotland – as evidenced by the fact that the membership of the Bank of England Monetary Policy Committee is overwhelmingly based in south-east England.”

Nothing has changed. Today’s MPC has nine members. Five come from the Bank and four are appointed by the Westminster government. Six are Oxbridge educated, only one has experience outside the southern part of England, and all are anchored in London. Placing one Jock from Edinburgh among that lot, which is all we would be entitled to, would make no difference to its continued obsession with the south-east.

The SNP does not speak on this issue for the whole Yes side. Dennis Canavan, chairman of the Yes advisory committee, Patrick Harvie of the Greens and Colin Fox of the SSP, who are also on the advisory committee, and many others, want a Scottish currency. We all recognise that in the early stages of independence it is wise to align it to the pound sterling so that there are no transaction costs for business. But that decision to align is a sovereign one, as will be the decision when not to align. It also means we shall be a genuinely independent country, not controlled economically, by another.

Alex Salmond needs to get himself off this currency hook. It won’t be a matter of eating humble pie, or doing a fantastic U-turn.

He should write direct to George Osborne and ask him if he will agree to a currency union. Osborne will not want to say yes or no, because the longer he keeps the uncertainty going, the better for the No side. But any dodging by the Chancellor, together with the statements of the Welsh First Secretary, and the unofficial but influential writers like Wolf who say no, provide ample reason to look at a plan B. I hope he does just that.

Missing in action

Penalty shoot-outs are exciting but my heart, if you will forgive the pun, goes out to lads – such as Jamie Hamill – who miss.

Using wrong driving force

ARE bus and taxi drivers, who use roads the most, ever consulted before decisions are made about traffic management changes? I doubt it.


First they claimed Burns would vote No. Now it is the war dead who oppose independence. How do they know? Via a Ouija board séance in the House of Lords?