Currency is the number one issue in Scottish independence debate

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John  S Warren, who comments here often, had this post on Bella Caledonia last week, and I thought I would share it here given its relevance to current debates:

“Scotland will be liberated by debt if it becomes independent” – Richard Murphy.

Scottish independence requires the problem of currency to be addressed and solved. This the most critical matter of all. The SNP in 2014 wanted to share the currency (£ sterling) with the UK but the British Government blocked this, for reasons I will discuss below. It was a mistake to propose sharing the currency in 2014, because it meant Scotland would not be independent. Control of currency is control of the purse strings, and that is a more decisive control over a country than everyday politics. The current SNP position is now to move to a separate currency, but not immediately. This is also unsatisfactory, and for those who wish to explore why this is so I recommend reading Common Weal, and also Dr Tim Rideout who is an SNP member; for their extensive coverage of the matter. I also recommend Richard Murphy, who has just produced a short ten minute video lecture that explains the position, here:

I wish here only to explain where we actually stand now in Scotland, and what this implies.

The British State has already acknowledged that it was taking full responsibility for all the commitments associated with currency in the event of Scottish independence in 2014. In January, 2014 the Treasury made a statement on currency, post-independence: “In the event of Scottish independence from the United Kingdom, the continuing UK government would in all circumstances honour the contractual terms of the debt issued by the UK government”.

This established the principle that rUK was the ‘continuing state’ in international law, and that rUK was responsible for both the currency assets and liabilities. In February George Osborne, the Chancellor formally ruled out a currency Union with Scotland. In September 2014, Mark Carney, Governor of the Bank of England, confirmed that a currency union between an independent Scotland and rUK was “incompatible with sovereignty”. It had been made clear throughout that there was no qualification to the responsibility for debt that rUK was acquiring, related to the Scottish State taking a share of debt, and there is good reason for that. rUK did not wish to leave a scintilla of doubt in anyone’s mind anywhere that the obligation rUK was carrying was conditional in any way, on anything Scotland did. The currency of rUK was going to continue to be the currency of a wholly free currency issuer. This was fundamental – they did not wait to negotiate it: it was too important, and too urgent.

There are three important points following from this.

1) Scotland has no responsibility for UK debts.

2) It is forgotten that the Treaty of Union in 1707 created a completely new Parliament for Britain (both the Scottish and English Parliaments were dissolved, but only the Edinburgh parliament actually ceased); this deliberate formality created what is technically described as an incorporating Union.

This has a precise meaning.

Strictly, the only way to break an incorporating Union is to dissolve it, not do what we would actually be doing – allowing the secession of Scotland from a union that is not in fact, strictly a federal union; but this is in order to ensure that there is a continuing an rUK that is also the ‘continuing state’; dissolution would be a world disaster. Why was it set up as an incorporating union? Because England hoped that it could bind Scotland forever in the Union. If they believed that they would not have proposed secession in 2014 (in fact the Union almost broke in Parliament shortly after the Union, in 1712. The Scots nearly left, and the Union was rescued in Parliament only by proxy votes).

The lesson is: nothing is forever. In that sense the whole operation now is a fiction – but nobody, not rUK, not Scotland not anyone can afford to follow the strict niceties devised by 18th century commissioners’ rules. They are no longer viable in the modern world. We are doing the only thing that works. Scotland leaves, England takes the common assets and the liabilities that go with them. It also happens to follow the contemporary international precedents; the fairly standard boilerplate rules typically in use for seceding nations in international law. This is what works most efficiently and fairly in the modern world.

3) The important point about the 2014 British government statement is that rUK was also making a big, very revealing declaration about what was really important to it. Nobody asked Britain to make that statement.

It was not what Scotland proposed at the time. But rUK was not prepared even to negotiate with Scotland over the currency (£ sterling), in spite of the fact that Scotland is a joint owner of the currency. rUK just gratuitously asserted right of possession and full title.

In fact, Alex Salmond had proposed sharing the currency (a very bad judgement).

The assertion by rUK was not founded in right, but necessity. It was done because the currency was of vital importance to rUK, and it required and was utterly determined, to establish unvarnished sovereignty over the currency as its prime objective, and it understood that in taking title to itself without notice or negotiation, the price of taking the currency with no negotiation was that rUK would have to assert equal certain ownership of all the currency liabilities. The corollary of this is that Scotland becomes a currency user of its own currency, and therefore also requires to issue its own currency after independence, if it wishes to retain independence. rUK knows in this case they cannot have it every way; both have their cake and eat it; (of course everybody living in rUK thinks it is worthwhile to pile in and try to grab a free lunch as well by trying to pass off the liabilities to Scotland anyway as if this is a car boot sale), but we all know it won’t wash.

The solution proposed by rUK in 2014 was vital to rUK, and it suits Scotland well, because independence is de facto defined by being a currency issuer, not a currency user; currency issuance is the defining feature of modern independence.