This discussion took place at the recent Scottish Economics Festival:
This is the transcript:
Will: And now you're aware of a report that I wrote with Jim Osborne from the Scottish Currency Group, and we suggested that the idea that the Scottish Government has come up with — that they need to issue wholesale bonds — is not a very good idea. The report was a little bit firmer on that, but that's what we came up with. And we said that the Scottish Government, if it wants to raise money, should look at retail bonds. Principally, we said that because there's £170 million worth of interest that's paid on these bonds. It should go to Scottish households and businesses rather than international financial markets.
That's kind of where we started. Then we looked at it a little bit more, and it just got worse and worse, the layers that we went down. But I just wanted your thoughts on that: a wholesale bond for the Scottish Government now, as a currency user and as a devolved nation, does that seem to make sense to you?
Richard: No — there's a simple answer — not at all. I'm entirely with you on this one. The reason why issuing wholesale bonds buys you into the existing financial hierarchy.
Scottish independence should not be only about creating an independent Scotland, which I firmly believe in. So why do I think this is a mistake? Because I think Scotland not only has to explore what independence means as a country, but it has to mean what innovation for the people of Scotland means as well. And buying into the existing bond hierarchy, to me, makes no sense at all.
Buying into the idea of retail bonds for Scotland does make sense for me. I believe that Scotland is as capable of being a strong, independent country as Denmark is capable of being. I happen to know Denmark quite well. I have taught at Copenhagen Business School for quite a while; I've co-authored there at one time; I spent a lot of time in Copenhagen, a great city to go to if you have to go somewhere and you know it well. But I don't see any great difference between the situation of Scotland and Denmark at all.
Denmark issues its own bonds. But people in Denmark believe in Denmark, and they fund Denmark using Danish money. And that's what Scotland should be setting the precedent of doing now. That means that Scotland should be issuing the equivalent of National Savings and Investment bonds for retail purchases inside the UK.
Issuing retail bonds is very important to me. First of all, it's rather like tax: it is the consideration in the social contract, in my opinion, between people and the government. If you actually have a retail bond, what you're saying is that you are buying into what the government is going to do with this bond. And the government then has a duty to explain what its investment programme is using this money.
There's a democratic connection. There is a fundamental democratic connection in this. And I'm going back — I'm going to do some work on this very soon — because if you look at the history of the economic development of the UK as a whole, and this is true inside Scotland and England in the nineteenth century, local authorities were fundamental to that development: sewers, water, electricity, tramways, housing, gas, public health, hospitals. They funded that.
What did they fund it with? Retail bonds. A lot of that was retail bond money. We could rebuild that connection between savings and investment by building a retail bond idea again, which reconnects the saver with the consequences in their community. That, I believe, makes sense.
The idea of issuing a wholesale bond makes no sense to me at all. That's just financial engineering. We're back to those same old problems.
Note for clarification: I mixed past and present tenses when talking about Copenhagen. The link with Copenhagen Business School is now entirely in the past. The liking for Copenhagen remains.
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Retail or wholesale bonds? – The answer must be both.
Scottish savings institutions (pension funds etc.) will have to buy something and who else will provide the assets in Scottish currency that will be required? Interestingly, this underlines your oft made point that government bonds are proved as a service to savers and are not “debt” in the conventionally understood sense.
And, if this is about Scotland borrowing before independence in GBP then I would not issue at all as the prospects for independence and redenomination of debt would make it more expensive than gilts. Better to stick with Central Government borrowing in this case.
In the end the answer has to include wholesale bonds. Right now, retail matter.
You have raised the investment opportunities missed with ISAs so your position is totally consistent. ‘Investment’ as we have seen it since Thatcher is driven by ‘inward’ investment and is not actually investment, being more usually a down payment to access rents by just about anyone. This puts the private financial sector in a key position of power over any government and abuse of that power as we see now.
I used AI to answer this question ‘Retail versus wholesale bonds?’. See below. Retail bonds? What is there not to like?
Overview of Retail and Wholesale Bonds
Retail and wholesale bonds are two types of debt securities that differ primarily in their target investors and regulatory requirements.
Key Differences
Feature
Retail Bonds
Wholesale Bonds
Target Investors
General public
Sophisticated or professional investors
Minimum Denomination
Typically lower, accessible to individual investors
Higher denominations, often starting at $500,000 or more
Disclosure Requirements
Must provide detailed disclosure documents (e.g., prospectus)
Fewer disclosure requirements, not subject to retail regulations
Trading Market
May be listed on exchanges (e.g., ASX)
Primarily traded in the over-the-counter (OTC) market
Regulatory Framework
Retail Bonds: These require compliance with specific disclosure regulations to protect individual investors. This includes providing a prospectus that outlines the risks and features of the bond.
Wholesale Bonds: These are exempt from many of the retail disclosure requirements, allowing for a more streamlined issuance process. They are designed for investors who are presumed to have a higher level of financial knowledge and risk tolerance.
Accessibility
Retail bonds are generally more accessible to the average investor, while wholesale bonds are typically reserved for institutional investors or high-net-worth individuals. This distinction is crucial for understanding the investment landscape and the associated risks and benefits of each bond type.
Thank you
I’m trying to understand the difference between Retail and Wholesale bonds. Would the Wholesale bonds issued on the international markets create/bring in new money to Scotland? Would retail bonds do the same or only recirculate existing money?
Wholesale bonds are sold to financial institutions. Retail bonds are sold to individual investors, or savers.
The proposal is to issue retail bonds but also offer the SG bonds to the Scottish Local Government Pension Funds. There are two papers that can be downloaded from the Scottish Currency Group website at Publications repository – Scottish Currency Group | Scottish Currency Group
The joint Scotonomics/SCG paper “Scottish Government Bonds and Investing in Ourselves” – co-authored by William Thomson and me.
The SCG paper “The Community Wealth Building Act 2026 and the Fiduciary Duty of Scotland’s Local Government Pension Funds” – authored by me.
Both papers specifically and deliberately avoid any proposal that Ministers or politicians more generally should be directing how pension funds should invest. This is the mistake the UK Government has made with the so-called “mandation” provisions in the Pensin Schemes Bill which create a reserved power for government to intervene in pension fund investment decisions. What needs to be addressed instead is the legal meaning of “fiduciary duty” which then offers bigger space for investment decision making without limiting it to a narrow duty to “act in the best financial interests of the beneficiaries”.
ShareAction were one of a group of organisations behind Amendment 128A to the Pension Schemes Bill, which proposed widening the scope of “fiduciary duty”. A committee has been set up now to discuss reform to the law and ShareAction are one of the members of the committee.
Thanks
“Principally, we said that because there’s £170 million worth of interest that’s paid on these bonds. It should go to Scottish households and businesses rather than international financial markets.”
Which bonds are £170 million being paid on? Are the Scottish Government already issuing bonds or are they UK government retail bonds?
They are issuing wholesale bonds now
They aren’t issuing them yet – the decision whether and when to implement the SG Bond Programme will be taken in the next Scottish Parliament. We will continue to press for a change in the bond programme after the May 7th Scottish elections
Thanks how disappointing, more of the same. Noticed the issue cut through The National’s comments on main articles today. e.g. Mhairi Black’s see readers comments section