Dr Tim Rideout made this speech at the SNP conference on Saturday, and won the support of its membership as a result:
It's worth adding that the SNP leadership say that the six tests that Tim rubbished survived intact.
I beg to wonder how they might think that. But this is modern politics: believe what you will.
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Is it not crystal clear to all concerned that there is no point in national independence without establishing a national currency and central bank? The same point should be clear, I hasten to add, to progressives south of the border, with “transformative” proposals in their sights. These will come to naught without sympathetic control of the banking system and the currency. [The] Labour [Party] must seize control of the means of production (of money). That does not mean the end of private banking, far from it, but you can’t implement social reform without of guidance for the use of credit and the distribution of debt.
Agreed
Isn’t it totally academic?
An independent Scotland would be forced off the GBP almost immediately – or be forced into even greater budget cuts. There is literally no way Scotland could keep the pound for anything more than the short term.
Scotland has an 8% budget deficit, a £10bn trade deficit and wouldn’t have enough forex reserves to cover it for very long. Where would they get the GBP from to cover this?
Added to that, they wouldn’t have a high credit rating so borrowing costs would be much higher.
Which is why people are so scared of a new Scottish pound. It would likely weaken against the GBP, and borrowers likely have to pay much higher rates.
On another note, I do find it amusing that a lot of people complaining about Brexit, saying it should be reversed and the UK should remain in the UK because of trade etc, are also pro-Scottish independence.
The UK is Scotland’s biggest trading partner, so if you say the UK should remain in the EU because of trade, then surely Scotland should remain in the UK for the same reasons?
Then of course, the pro-independence people want to (re)join the EU – forcing Scotland to submit to EU rules and taking a lot of the powers of a newly independent Scotland and handing them to Brussels.
Makes literally no sense, unless you are paid by the EU or the only reason you want independence is to stop being governed from London.
This is so wrong, where to start?
First, you do not know Scotland has a trade deficit: no one does
Second, its GDP is higher than the Uk as a whole per capita, and the rUK has London in it;
Third, GERS does not necessarily indicate a budget deficit: the data is wrong and simply made up in most cases
Fourth, if the Scorrish currency is used and people translate their sterling funds Scotland will have £50bn of reserves
I could go on, and on
The point is – you are not talking facts. And that means you have no case
“First, you do not know Scotland has a trade deficit: no one does”
Export statistics Scotland (the people who should know) seem to think it’s about £10bn a year. Scotland has a trade surplus with the rest of the world, but a large deficit with the rUK.
Some more info for you : https://theferret.scot/scotland-uk-country-export-import/
“Second, its GDP is higher than the Uk as a whole per capita, and the rUK has London in it”
GDP per capita doesn’t have anything to do with trade or budget deficits. Plus it’s only higher if you include ALL the revenues from North Sea oil. Which I thought people like you were arguing should stay in the ground.
“Third, GERS does not necessarily indicate a budget deficit: the data is wrong and simply made up in most cases”
Really? The Scottish government publish how much the spend, and how much they receive from taxes and other grants. These are not highly controversial numbers.
Without funding from rUK they would have a roughly 8% budget deficit. GERS very much indicates a budget deficit. There is simply no sensible argument to say otherwise.
“Fourth, if the Scorrish currency is used and people translate their sterling funds Scotland will have £50bn of reserves”
Ah no. That’s not what forex reserves are – and it is something Tim Rideout deliberately gets wrong as well. Money held by individuals or companies does not count towards forex reserves (and not everybody will switch their cash into the new currency). Only that held by the government/central bank. You might want to look at a definition:
https://en.wikipedia.org/wiki/Foreign-exchange_reserves
Scotland would (might?) inherit some of the UK’s reserves (which are £180bn, not $55bn as Tim Rideout also claims) but Scotland would be going through that in a matter of a few years at current rates.
And you do need reserves if you are a net importer, like Scotland. More so if you are using someone else’s currency, which is rather my point. With a new Scottish pound, some of the pressure on reserves eases, but only because you would be selling the SCP in the open market to buy foreign currency – which is going to weaken the SCP. Which is what everyone in the real world expects to happen if there is a new SCP.
So as I say, Scotland would very quickly get forced off the GBP, and forced unto a SCP (which is what you want, I thought?).
Then the SCP would likely weaken quite a margin against the GBP, and Scottish interest rates would move a lot higher (for that among other reasons).
GERS is creepily contriversial
And there is no trade data for Scotland because it is not collected – it is estimated
As for reserves – Scotland could have part of UK reserves – and is allocating payment for assets in exchange for liabilities
None of what you say is true
Only thing I would add to that is that the current best estimates are that Scotland has a Balance of Payments which is about nil, unlike the UK which has one of the worst deficits ever (not far off £150 billion). That is important as it means Scotland almost certainly pays its way in the World and thus there will be no need at all for any external borrowing. Andrew Wilson is going on again in The National today about international money markets, but they are irrelevant. We don’t need them so our credit rating, etc is not important. If the Government has a deficit, as indeed it should, then that can be financed internally to Scotland. For example Scottish Pension Funds will wish to sell their UK gilts and replace them with Scottish ones to avoid being exposed to an exchange rate risk, so there will be a very ready market for any bonds that the SG issues. What almost everyone, including Andrew Wilson, fail to recognise is that unless the Scottish Government wants to purchase something priced in dollars, euro or whatever (a slightly used, one careful owner Trident missile system anyone?) then borrowing in any non-Scottish currency is entirely pointless. The SG can’t and won’t spend Euro, Dollars, Sterling etc within Scotland because they will be the wrong currency. If they wish to finance a deficit by borrowing (and of course they could just increase their overdraft at the Central Bank) then the only thing they can borrow is the Scottish currency. They are not going to get that on any international market because those markets do not have any! I really don’t think most so called experts, including all those on the ‘Sustainable’ Growth Commission have actually thought any of this through at all.
I agree with all that Tim
The UK reserves position to end March 2019 is now available:
Assets $169,493.02
Liabilities $-113,800.21
(in millions).
So net reserves are now $55,693 millions, so $55.693 billion and thus almost exactly what I said (which was for Feb). These can be found here: https://www.bankofengland.co.uk/statistics/uk-international-reserves/2019/march-2019, which I suspect is slightly more accurate than Wikipedia.
In any case you can not look at assets and entirely forget about liabilities, which is what both Andrew Wilson and this ‘Mac’ person have done.
I am also rather curious as to why ‘Mac’ thinks the Scottish Government would be using official foreign reserves to pay the import bills of private companies and citizens. That would be very bizarre. If Westminster is going to start doing that can I put my name down for a Mercedes please?
🙂
“And there is no trade data for Scotland because it is not collected — it is estimated”
https://www2.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSFAQ#_How_are_the
All data is estimated – unless you are saying that the data is wrong unless you count every transaction for every widget (and everything else) imported into or out of Scotland.
The data is not likely to be materially incorrect.
“As for reserves — Scotland could have part of UK reserves — and is allocating payment for assets in exchange for liabilities”
The first part I agree with – the second part is wiffle. Scotland won’t suddenly gain huge forex reserves other than those distributed from the UKs. It will have to take on a fair chunk of the Uks debt though, by the same token.
“None of what you say is true”
Really? Which part?
Does Scotland have a budget deficit?
Does Scotland have a trade deficit?
Does Scotland receive revenue from the rUK?
Does Scotland have higher public spending per head than rUK?
Will Scotland likely be forced off the GBP?
Will a SCP likely weaken against the GBP?
All of these are likely true, which brings me back to your first point.
“GERS is creepily contriversial”
Not really, other than to people who are pro-independence, who understand full well that it blows a massive hole in their arguments as people don’t tend to vote to get poorer.
As a Scot myself, I find the whole thing deeply hypocritical.
On the one hand, you have the SNP saying English nationalism and the UK wanting to leave the EU and return powers to parliament is a bad thing. On the other, Scottish nationalism as long at it means independence is a good thing.
If you are pro-independence, fine. But at least be honest about what that means and why people want it.
The SNP and many of their followers want it because it gives them more power, probably keeps them in government for longer and means they don’t have those evil Tories in London telling them what they can and can’t do. Pretty much the same reasons a lot of people in the UK want to leave the EU. I don’t have a problem with that.
But then on the other hand they want to hand that power straight over to the EU and Brussels. You what?
Then they say it will make Scotland richer. But that’s not a very good argument either, because again, they say leaving the EU will make the UK poorer – so how will leaving its largest trading partner (the UK) make Scotland richer? Let alone the loss of funding from the rUK (whereas the UK is a large net contributor to the EU budget).
This currency issue is only such a big topic because it’s pretty obvious to most that a new Scottish currency would be much weaker than the GBP. Which would make people poorer overnight as their new SCPs lose purchasing power and the imported products they have to buy (which in Scotland is almost everything bar food and energy) gets a lot more expensive – not to mention the damage it would do to people’s savings.
I fully agree with you that an independent Scotland would need it’s own currency (if for different reasons) but to say it would be cost free is just not true. The SNP know this full well, which is why they want to go into another Indy campaign saying they will keep the GBP – because telling people that an independent Scotland will cost them lots of money means they will lose the referendum.
So it is politically expedient for them to tell a little white lie, and say they’ll keep the pound.
With respect I’ve done this all before and you’re the person making this stuff up
And GERS is simply estimates – many of which look suspect
So please don’t waste my time
Not least because GERS is stated to provide no guide to what an independent Scotland might look like
Whilst as for trade – given there is no measure across the UK internal borders all those stats can be whatever you want them to be
And what do you think Westminster might want?
@ Tim Rideout
Scotland has a negative balance of payments, tune of about £10bn. Most of that is with the rest of the UK. Export statistics Scotland, as I have said before, are the source. Or you could just ask the SNP:
http://scottishtrends.co.uk/wp-content/uploads/2018/05/SNP-Growth-Commission-on-BoP-revised-May2018-II.pdf
“unlike the UK which has one of the worst deficits ever (not far off £150 billion)”
In goods, true (actually £138bn in 2018). In services the UK has a massive surplus of £107bn. Meaning the UK as a whole has a relatively small trade deficit in comparison to the size of the economy.
“there will be no need at all for any external borrowing”
Mostly true, but beside the point.
“then that can be financed internally to Scotland”
For a while. Scotland has a large budget deficit (8%). Pension funds won’t buy Scottish debt forever, or more likely, the yields on that Scottish debt will have to be much higher than current yields on Gilts.
“Scottish Pension Funds will wish to sell their UK gilts and replace them with Scottish ones to avoid being exposed to an exchange rate risk”
Maybe, but most will likely just do a cross currency swap, meaning they get their payments in SCP rather than GBP, and therefore have no FX risk.
“very ready market for any bonds that the SG issues”
Rather a big assumption here. There will be a market, but not at the same rates as UK Gilts.
“unless the Scottish Government wants to purchase something priced in dollars, euro or whatever”
No, this isn’t just about the Scottish government. The balance of payments is Scotland as a whole. If it is negative, people are having to sell the local currency to buy foreign currency, to purchase whatever they are buying from abroad. This isn’t about how the Scottish government funds itself, it is how the economy finds enough foreign currency to buy what it needs.
“They are not going to get that on any international market because those markets do not have any!”
The international market doesn’t need any. That is what FX swaps are for. it would be a massive problem if a new Scottish central bank didn’t extend swap lines.
“The UK reserves position to end March 2019 is now available:
Assets $169,493.02
Liabilities $-113,800.21”
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791997/reserves_stats_release_March_2019.pdf
You should probably read the small print on the liabilities side. I quote:
“Net present value of foreign currency forwards, interest rate and cross currency swaps (excluding sterling leg).”
“Market value of liabilities to repay foreign currency received in repo transactions. ”
Which means they are excluding the value of the sterling leg of the transaction. Given FX swaps have equal and opposite legs, (you swap X of one currency for Y of another) and no exchange rate risk), those liabilities are not net.
It’s fairly dumb accounting, but it means that you need to look at the headline Gross reserves number, not net reserves. Which means $175bn, not the $55bn you are quoting.
“I am also rather curious as to why ‘Mac’ thinks the Scottish Government would be using official foreign reserves to pay the import bills of private companies and citizens.”
That’s not what I’m saying, but it would probably be worth you looking at what reserves are for as well:
https://en.wikipedia.org/wiki/Foreign-exchange_reserves
Simply put, Scotland has a negative balance of payments. Which means Scotland as a country will net have to sell SCP to buy foreign currency every year. About £10bn of it, currently.
This is a very large amount considering Scotland’s £150bn GDP. This demand for foreign currency will weaken the SCP – which is the crux of my argument, and if the Scottish central bank has no forex reserves it will simply not be able to do anything about it.
As I said to Richard Murphy, I agree that Scotland will not be able to keep the GBP, but will be forced onto a new SCP. Which will weaken quite dramatically – making Scots poorer. Let alone the forced austerity that will come when Scotland loses its subsidy from rUK.
Which is something you and the SNP are not so keen to talk about. If you want independence, fine, but at least be honest about the costs involved. It isn’t going to be free – and the SNP clearly knows this, and knows it will cost them votes in any independence referendum.
@ Richard Murphy
“you’re the person making this stuff up”
What am I making up? I’ve given you evidence for all my points.
If anyone is making anything up, it is you, saying that Scotland’s data can’t be trusted, and essentially that the budget deficit etc is a lie.
“And GERS is simply estimates — many of which look suspect”
All economic data is estimates. It is impossible to track every transaction in an economy. That doesn’t make the data meaningless.
The easiest data to get right though are revenues and spending. Are you really saying that GERS is getting the Scottish budget out by more than 8%?
And do you have any real, hard evidence or proof that it is materially wrong, rather than just stating it is because….”estimates”.
“Whilst as for trade — given there is no measure across the UK internal borders all those stats can be whatever you want them to be”
Well the SNP seem to be able to get the data:
http://scottishtrends.co.uk/wp-content/uploads/2018/05/SNP-Growth-Commission-on-BoP-revised-May2018-II.pdf
I very strongly suspect you are like the Englishman abroad who when he is not understood shouts louder
I reiterate: I have also all this already
Now quietly go away
“Scotland is the UK’s biggest trading partner”?
When did that happen? What were the results of these trade negotiations?
I bet Europe’s biggest oil producers for the last and next 40 years drove a hard bargain!
All major commodities are traded in dollars. Scotland will need dollars even to buy it’s “own” oil. It will be required to export real wealth in return for dollars (bits of paper) which the USA produces at zero cost. This is known as dollar hegemony. Any attempt to circumvent this imperial decree would be regarded by the USA as an act of war. Scotland would then be viewed as rogue state, and like Afghanistan, Iraq and Libya before be in danger of suffering a similar fate. This will be sold as being in need of regime change, the imposition of democracy and the rule of law. I wouldn’t of course expect Scotland to take this lying down, like Venezuela currently they will put up a valiant fight.
So?
But let me ask the question, who needs the dollars? After all, Scotland generates dollar earnings now and will then. So what are you suggesting?
I am only suggesting that like sterling and the euro the Scottish pound will be a derivative currency of the dollar. Any independence will thus be subject to all the constraints that that implies. Many in the Independence movement naturally want Scotland to pursue very progressive social and foreign policy programs. I wish them well, but at times the road will get very bumpy and calls for a more moderate and middle of the road course may threaten those programs.
All currencies tend to move in some sync: the question is where the Scottish pound will pitch before the general roller coaster begins. I suspect that it will be much stronger than most expect. Scotland has considerably more inherent strength than most appreciate.
Tim Rideout
Mercedes are really over rated.
I love your little video. I feel that everything you have said is right.
I hope that the SNP are listening.
Yes, my late Great Uncle in Cape Town had a Mercedes 350SE in the mid 1970s (in fact he probably had it for 25 years until he died), but I always thought it had really hard and uncomfortable leather seats. It was petrol and until my Dad, who was an engineer, fitted it with a diesel engine water trap it was always breaking down. South African petrol was not refined to the same standard as in Europe and there was enough water in it to corrode the fuel injectors.
Thank you for the compliment. I could have said a lot more but it was strictly time limited to 3 minutes + 2 minutes. I think the members and delegates definitely were listening and agree with me – the leadership (i.e. Nicola) then not really as yet. But they do now know that banging on about sterlingisation and the tests, etc is dangerous for them, so I suspect we won’t hear too much more.
To Mac,
Where have you been this last twelve months ? GERS figures have been shown to be completely unreliable , a fabrication to fool.
The English pound will lose value once Scotland becomes independent and and Northern Ireland leaves to rejoin Southern Ireland ,further devaluation of the English pound will take place when Gibraltar rejoins Spain and Wales May follow suit too causing further devaluation.
The writing is on the wall you are just not prepared to accept it.
The Scottish pound will be strong and with control of its own currency and economy and all that goes with it Scotland with a mere five million people will fare better than they ever have before.
Your days are done, your frightened response is laughable but quite predictable ,we have seen it and heard it all before.
@ Richard Murphy
I very strongly suspect you don’t really have a proper answer for the evidence I have presented, other than telling me to stop showing you up and a bit more rhetoric.
“I suspect that it will be much stronger than most expect”
Stronger than the GBP? Go on, tell us where you think it will trade to the GBP. Please.
@ Terence Callachan
“GERS figures have been shown to be completely unreliable , a fabrication to fool.”
Really? By who, and where? I’m sure you can point me to the evidence for this?
And no, Richard Murphy doesn’t count – he has said GERS is made up but presented no evidence for his case.
“The English pound will lose value once……..”
Will it? Maybe, but you could also say it will likely gain value once you take away two of the regions in the UK that the rUK has to subsidise the most.
“The writing is on the wall you are just not prepared to accept it.”
Touche. I’m guessing you are a pro-independence SNP supporter, right? The writing on the wall is that you lost the last referendum, Scotland doesn’t want another one, would more than likely lose another one as well, but most importantly a newly independent Scotland would have to make hard choices and spending cuts that would make people poorer, not richer as the SNP promised. Maybe you should be able to accept that reality?
“The Scottish pound will be strong and with control of its own currency and economy”
Will it? Because…..Scotland?
Big budget and current account deficits tend to make a currency weak, not strong. There is plenty of evidence for this if you look around the world, and through history.
@ Tim Rideout
Further to my earlier points – which you seem unwilling to answer, and specifically related to pensions:
https://www.telegraph.co.uk/news/2019/04/26/snp-plans-scottish-currency-would-hit-buying-power-state-pensions/
A few points to note here. Firstly, and most easily, the SNP aren’t wholly stupid. They know that a new currency will make people poorer, and making people poorer is going to cost them votes – as detailed in the pools mentioned in the linked article.
Secondly, you talked about Scottish pension funds buying Scottish government debt.
I agreed that some would, but not in the amounts necessary. The bigger problems Scotland would have, especially with it’s new currency, are related to this though.
Bonds are not the only pension investment. Typically they make up around 40% of a savers’ investments. Scotland though, doesn’t have it’s own local stock exchange, denominated in SCP. Which means a large percentage of those savings in SCP will immediately go offshore.
This means that savers will be net sellers of SCP.
In addition, the new independent Scotland would have to take on some of the UK national debt, or make payments to the UK in lieu of it. These would be in GBP. Which means the Scottish government would have to sell SCP to buy GBP to make these payments. Yet another downward pressure on the value of the SCP.
Both of these rather large issues will put increased pressure on Scotland’s balance of payments and downward pressure on the SCP.
These are serious questions covering serious problems with a new currency – and as I say I think Scotland would be forced to have one. You can’t just ignore them (like Richard Murphy) or sweep them under the rug.
I suggest you go and read all Common Weal have written on this – to which I have contributed – and only then come back again
Your points have all been answered and I am not rewriting that material here for you
Common Weal suggests Scotland would need about $40bn of reserves (which sounds about right).
Common Weal also say that Scotland would inherit about half of that amount from the UK, and would have to borrow the rest through Eurobonds (foreign currency borrowing) and FX swaps. Thats roughly fine, again.
Problem they don’t cover though, is how they would keep financing the current account deficit – which as mentioned is about £10bn a year. So you would have about 3 years before your reserves were exhausted.
Which would mean, either Scotland would have to borrow more in foreign currency, cut spending to fund it or most likely, the SCP would have to weaken to bridge the gap.
Which rather takes us back to square one.
You do not know that the deceit is £10bn
You also seem to be unaware of the difference between government and national deficits
Maybe you should think about it
But at least you have now only got one issue left to get right: that’s progress
My response to all of your posts here is that, you claim to be a Scot, but have willingly bought in to all the negatives pushed by the Westminster Unionists. 312 years of belittling and contempt from Westminster have become ingrained in such Scots as you. I come to this blog because Richard and the other regular commenters keep me up to date and informed about the economy, both in the UK and Scotland.
I was born in England, and have chosen to live in Scotland as the atmosphere here is so much more pleasant and friendly. No chip on the shoulder, no grievance, just a feeling of trust in my fellow Scot.
Well done Tim, for your complete demolition of the 6 tests written by the Growth Commission (aka the ‘Tory’-wing of the SNP) .
I have not been following this thread closely, but I am perplexed by a proposition that, it appears: requires to argue that a sophisticated, advanced, politically very stable and savvy small northern European state, with a long history in the dynamics of economic change, considerable economic advantages, both in natural resources, people/intellectual skills and experience, and a remarkably strong culture in higher education and research; advantages, not least in those areas of the wider economic world with significant growth prospects in the immediate and longer term future: is literally going to struggle to survive independently, solely because it will not be able to secure its future without hopelessly foundering over the technicalities of currency; a state, I might add that was a founder of modern economics, banking and finance, and has 300 years experience of it, mostly at the ‘cutting-edge’.
It folllows from the argument underpinning the claim for this hapless failure; this disctinctive inability of management among all the advanced, post-industrial economies; that this phenomenon is peculiar, and indeed quite unique in the whole world – to Scotland alone.
I suggest that if a model of Scotland has been produced that is so precarious it cannot independently handle currency in the modern world, the devisor of it should perhaps undertake a very close and careful reappraisal of all their assumptions, a comprehensive deconstruction of the detailed structure of their model, and a critical review of their analysis: because candidly, something has to be wrong with it.
Whether Scots wish to be independent or not is a matter of moment; the proposition that it simply cannot technically be achieved without unavoidable catastrophe is quite another. I suspect the wish may have been father to the thought.
I think I follow your logic here John: I think you are saying Tim is right and the Growth Commission wrong
But I have to say that it’s not clear
Actually, I was writing about some comments on the thread that, taking them together, seemed to suggest that an independent Scotland would founder on the technicalities of currency, whatever it tried to do.
It will if it doesn’t have its own currency
All that has been covered elsewhere, including by me; I am specifically NOT discussing Dr Rideout’s position, nor even the Growth Commission, but other comments that were made in the thread.
OK!!