Will Scotland need its win currency if it becomes independent? Yes, of course it will. But it needs saying time, after time, after time.
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Thanks for this, fascinating. Home currency absolutely a fundamental requirement.
One question for you Richard. How would Scotland defend itself against rising House prices should Oligarchs and people who have criminally extracted currency from elsewhere decided to buy up lots of property in Scottish Towns and Cities. I think they’ll try.
I’m thinking back to London after about 2000 or so, when the developers came and the house market went nuts. Ruined it for regular workers. How would MMT control, keep a lid on, that potential disaster?
It’s quite possible that Scotland will have to do what I call ‘a Jersey’ and reserve property for locals
Scottish land reform is an issue the SNP has ducked for too long
But it is not an MMT issue – sometimes other tools are needed
NZ has done similar after the previous govt relaxed the rules over foreigners buying property. There is much popular support for the move.
It might cause problems for several absentee estate landowners but that would be their problem, not ours.
We’re already seeing the property market in Scotland becoming busy following easing of lockdown. There have been plenty of media articles about the activities of English and foreign buyers scooping up country estates and pricey properties in and around Edinburgh at prices which seem like bargains compared with London prices.
I’d hope that the SNP might act to protect the property market here from exploitation and, who knows, it might encourage them to take larger steps to address the much bigger issue of land reform
Tim Rideout for President! Tim Rideout for President! (Or whatever our equivalent will be).
One thing I’ve been thinking about – obviously currency was a big issue in the 2014 referendum, but arguing about what currency to use seemed pointless – and in reality it doesn’t STOP independence – using the GBP – so it wasn’t ‘wrong’ per se, but now knowing more, I realise it is the difference between an immediately successful independent country (Scotland has a lot of natural resources) and a struggling clawing our way away from the empire sort-of independence. Ireland took years to extract themselves properly. With our own currency we can really be independent, but also successful without struggle (I reckon).
It only seemed pointless because hardly anyone understood the nature of money is that of a continuous flow oscillating repeatedly between credit and debt but government is needed to maintain this flow when asset bubbles burst or a pandemic drastically reduces this flow. If government is needed to create money from thin air (like the private sector banks do) to maintain the value of money then it can also create it to serve the public purpose which in turn helps the economy.
https://www.community-exchange.org/docs/what%20is%20money.htm
Richard,
You, or MMT doesnt say anything about the role of state run industries as a form of taxation. It seems to me that if ‘utilities’ are state rather that privately run they would have a role to play in calling money back in like taxation for cancellation.
It’s an issue to consider
It should be noted that for eg Scottish Water is still in public hands as is Caledonian MacBrayn the lifeline Ferry Operator who incidentally have been tasked by Scotgov to prepare a bid for Scotrail if Abelio are kicked off or just when the franchise is next up for renewal. So we could soon add rail to the public portfolio. Since we’re out of the EU we can then cancel the franchise system and lock it down.
We may already be working with a Schrodinger’s currency of sorts. This comment I’m paraphrasing was posted on Twitter just the other day;
“Scottish banknotes have to be backed with the sterling equivalent amount. A Scottish currency would actually start with 100% reserves. Approx. £50 billion. That’s five times what Finland has…”
Does this factor in at all?
Small point, in a slip of the tongue, you said “Nationalist.” It’s perhaps ironic the Scottish National Party isn’t the most nationalist party in Holyrood.
I strongly suspect that is autocorrect
I will go and address it
And Tim Rideout has addressed the issue you raise
Oops…
Definitely a slip of the tongue
And Tim Rideout ahs addressed the point you raise
I’ve made the point several times before elsewhere that we can use the deposits in Threadneedle St to instantly capitalise our Central Bank. We would have to let the banks issue script as part of the deal but that could be revisited later on if we decide.
It just seems like a no brainer. At midnight before Independence day the banks withdraw from Threadneedle & deposit in Edinburgh. £50Billion instantly.
I would be grateful if anyone in the know could point out a flaw in this plan because I can’t see one.
A central bank does not need capital. It is the source of money so it does not need S£ capital as it just creates it as required. The Scottish bank note bond at the BoE is £4.5 billion and that will move to the Scottish Reserve Bank assuming we let them carry on with their own notes. We do not want or need any share of the UK foreign reserves.
The next talk on The Economics of Independence is on Thursday for YES Bute. We will cover currency among many other issues:
https://www.eventbrite.co.uk/e/the-economics-of-independence-with-yes-bute-tickets-116399252297
Thanks Tim. I have booked my ticket. Am on Twitter but missed this. Need someone to do some retweets for you. Richard?
Hi Richard,
European Union membership criteria will also demand that a separate Scotland has its own currency if it wishes to begin the accession process to becoming a full EU member.
Further, what is your view on the asset-liability mismatch regarding existing debt contracts when the new currency is established?
The SNP’s Growth Commission has already confirmed that all debt contracts currently denominated in Sterling will remain in Sterling once they launch the new Scottish currency.
Thanks.
The SNP Growth Commission has said a great deal I and many others disagree with
See what Common Weal and Tim Rideout have to say
They better reflect most in the SNP
The SNP Growth Commission members need to made to answer the following questions:-
How come countries like Iceland and the Seychelles with much smaller populations managed to obtain their own currencies without reliance on other countries?
Is money only created by private sector bankers?
How do private sector bankers create money?
If they create it from thin air as the Bank of England tells us what stops an independent Scottish government from doing the same?
No, all contracts where all parties are Scottish domiciled will convert to S£ UNLESS the parties decide to opt out and specifically keep the contract in sterling. Where a party is not domiciled in Scotland the contract will stay sterling unless all parties decide to change it to S£. Any financial institution that wishes to still operate in Scotland will have to establish a Scottish subsidiary and register with the Scottish Reserve Bank. Part of the registration requirement will be that contract with customers domiciled in Scotland be moved to the new Scottish company and thus both parties will be Scottish domiciled. Any bank that has sterling liquidity issues can be loaned any amount of necessary sterling against the security of the S£ loan book by the Scottish Reserve Bank. The SRB will have enough sterling to be able to buy back every S£ at the outset, so there is no issue of it not having the sterling to cover any of these short term issues. Some things will stay sterling, for example a Stocks & Shares ISA given that the stock exchange is in London and priced in sterling.
Thanks Tim
Not contradicting you but surely post Independence we can rebuild a Scottish share market? Then we can build a Scottish only portfolio so the matter will not arise.
Watched your video on the need for a Scottish pound as I sail up near Skye. Amazing technology and amazing scenery. Agree with you completely on the need for a Scottish currency. You know of my concerns over transitioning…… but happy to park these until the fundamental argument is won.
Clive
Enjoy the sailing
I know there is an issue to return to, and I will be
Best
Richard
Why do you repat the unionist (and Boris Johnson’s) slur of referring to the fictional Scottish Nationalist Party?
In 2013 I thought that the position in the White Paper of sharing both the GBP and the Bank of England was a Salmondesque (or Machiavellian) plot. It could assuage the grannies concerns over the pound in their purse and small traders worry over the cost of a dual currency during the initial phase of dealing with a new tax authority. The arrangement would involve division of the book value of assets including all of the property held in and around London, and a veto on changes in the base rate, borrowing and issuing currency. The latter would soon become unworkable between the energy importing rUK and an energy exporting Scotland. This was also predicated on the basis of both states being members of thr European Single Market, if not the EU. The refusal of such an arrangement underlined the acceptane by rUK of the UK debt and what became an unsuccessful attempt to blame the unionists for any perceived currency related downsides.
Prior to the introduction of the Euro, governments and cross-border traders ued thr European Currency Unit. Anyone could have an Ecu bank account, but there were no notes and coins in circulation. Would it be feasible for a newly independent Scottish Government to use a Scottish Currency Unit to pay its loacal debts ans collect taxes, while allowing GBP to circulate? Companies and individuals would find it convenient to open Scu bank accounts. Retail banks could be permitted to print new Scu denomination notes under similar conditions to there issuing of sterling notes. The establishment and adoption of national coinage would involve less disruption than that incurred by decimalisation.
It was a mistake
I apologise
I have no idea why I said it – strange things happen in front of cameras
Re the rest – see what Tim Rideout ha just said – matters have moved on a long way
To make the point about a Scottish currency clear, independence alone is not enough. The objective must be independence AND sovereignty.
Indylite or a Wexit (a weak exit) will not give Scotland the tools the country will require to foil the clumsy embraces of rUK, let alone proceed to a green, fair and decent society.
I don’t understand ScotGov not putting a currency front of centre with the message that we will need a fiat currency to handle situations like Covid. Most will accept that argument.
Is ScotGov ignorant of or lacking in sufficient expertise in currency or is it some sort of warped political calculation? If the latter Covid has changed things. People will understand if put in those terms. They see NZ for eg or Iceland or Norway.
With Scotland out of the sterling zone taking our oil, whisky exports, fisheries etc with us Sterling will fall anyway. It may be that whilst fixed we choose to keep reasonable parity with Sterling but after floating it that may not be the case. rUK out of the EU, us in & with a trade surplus plus the oil we will be the new Norway. Ensuring our currency is not too strong to hurt the export sector will be something for govt. Though our food exports are in the luxury sector so not sure how price sensitive they are.
More information on the topic of what exactly is money and relevant to Scottish independence:-
Chapter One Introduction of following book:-
“Credit and State Theories of Money : The Contributions of A. Mitchell Innes”
https://www.elgaronline.com/view/9781843765134.xml
Review of above book:-
http://personal.denison.edu/~kaboubf/Pub/HEI-Vol-13-N-1-2005.pd
Note Mitchell Innes was descended from the Gaelic “Innes” clan of Scotland. They were an island clan, no doubt fiercely independent. This also raises the question why does Scotland produce such interesting thinkers on economics, Adam Smith, Henry Dunning Macleod?
That second link does not work…sorry
Sorry clipped the “f” off.
http://personal.denison.edu/~kaboubf/Pub/HEI-Vol-13-N-1-2005.pdf
Here’s another interesting pdf on the Social Relationship Theory Of Money:-
https://www.csus.edu/indiv/h/henryjf/PDFS/Egypt.PDF
Why on Earth the Scots wouldn’t want a “Social Relations Currency” given they want independence to better social relationships doesn’t add up!
“To put it as simply as possible, the state chooses the unit of account in which the various money-things will be denominated. In all modern economies, it does this when it chooses the unit in which taxes will be denominated. It then names what will be accepted in payment of taxes, thus ‘monetizing’ those things. And those things will then become what Knapp called the ‘valuta money’, or, the money-thing at the top of the ‘money pyramid’ used for ultimate or net clearing in the non-government sector. Of course, most transactions that do not involve the government take place on the basis of credits and debits, that is, in terms of privately issued money-things. In spite of what Friedman assumes, the privately supplied credit money is never dropped from helicopters. Its issue simultaneously puts the issuer in a credit and debit situation, and does the same (although reversed) for the party accepting the credit money. In contrast, the state first puts its subjects or citizens (as the case may be) in the position of debtors, owing taxes, before it issues the money things accepted in tax payment. This is the method used by all modern nations to move resources to the state sector. Hence, for both government-money and private credit money, it is impossible to conceive of monetary neutrality — money is always by nature representative of a social relation that must matter.”
Chapter One: Introduction:-
“Credit and State Theories of Money: The Contributions of A. Mitchell Innes”
https://www.elgaronline.com/view/9781843765134.xml
I’ve been reading it this evening
Astonishing insight from 1913
Salmond “… accuses former allies in the Scottish National party and Scottish government of conspiring against him, and is due to give evidence to the parliamentary inquiry this autumn.”
https://www.theguardian.com/politics/2020/aug/18/sturgeon-told-of-salmond-allegations-earlier-than-thought-inquiry-told
Hmmm… sounds like skullduggery afoot but over what?
Helen asks “… sounds like skullduggery afoot but over what?”
As ever a number of issues are potentially involved. The Parliamentary Inquiry is into Holyrood’s procedures in relation to the Salmond court case, which was a criminal case, in which he was found not guilty on all but one of the charges and not proven in the other one. The evidence presented on all charges was adjudged to be insufficient for a criminal case conviction. The Parly Inquiry is a too-good-to-be-missed opportunity for the Opposition parties to score points at the SNP’s expense, so it’s getting massive MSM coverage up here. As indeed are Kirsty Wark’s TV documentary and Dani Garavelli’s radio documentary about the criminal trial.
It’s certainly in the interests of the British state to derail the independence movement and Britain has a long history of meddling in other peoples’ internal affairs for its own benefit. For a piece of evidence there’s the long-concealed Darbyshire Coup to bring down the democratically-elected government in Iran in 1953, which has just made it into the public domain in the last couple of days. As it happens MI6 or any another UK agency has an open goal if it wishes to interfere in political/legal matters in Scotland. The civil service is integral to these matters, but there is no Scottish Civil Service, the civil service function in Scotland is run by Whitehall. There were even awards issued in London by the UK Civil Service to “Scottish” civil servants for services to the UK for aiding the “No” campaign in the Scottish Indy Ref of 2014.
Under the current set up, UK interference in Scottish internal affairs, especially government matters, couldn’t be simpler, so I suspect it’s been the main driver in all aspects of the Salmond Affair.
Many Scots will be terrified at the prospect of a new Scottish currency. Especially when, by your own admission, they would be forced to convert GBP to SP. That is why Salmond had to take the position he did at the last referendum, that he would retain sterling as currency.
Why would middle-aged and older Scots who have built up wealth and assets take the risk that their investments might fall in value by 10-20% on adoption of a new currency? That’s not to say it will fall by that amount. It might increase by that amount. Or stay the same. But people are naturally cautious. That is a fact of life. It’s easy for you to sit in England and say that a new Scottish pound would be a great idea. Your investments are not going to be at risk.
One can legitimately agree or disagree with your economic ideas. But your strategy of selling them is terrible. Let’s say you are campaigning on behalf of the SNP for Scottish independence. You would seriously be going round telling people that Scotland will have its own currency and we will force you to use that currency because the only currency in which payment of taxes can be satisfied will be that currency? And you think that will be vote winner?
It’s like your position on MMT. It’s hard enough to persuade people to pay taxes to finance government spending. But at least they can see a link between the two, and people reluctantly accept the former in return for the latter.
But trying to persuade people to pay taxes in order to reduce inflation (where you would literally be telling people that “we must take money off you and thereby make you poorer, not to finance the NHS, but in order to keep prices down”) will be a vote loser every single time. Every government who did that would lose office.
I think you need to take a step back, Richard. All these ideas may seem jolly marvellous to you from ivory towers. But you need to consider the reaction of the man in the street.
The whole of your argument is premised on compulsory conversion to Scottish £ when the reality is the exact opposite is proposed
The proposal is that people only need convert if they want to
Whilst your MMT objection is one that only comes from people in ivory towers….
“Especially when, by your own admission, they would be forced to convert GBP to SP.”
What forced conversion? Who is promoting “forced conversion”, except you, disinforming Unionists and the ever-present trolls? Read Common Weal. It has done more work, more thoroughly on the detail of currency transition in Scotland than anyone. Your proposition is utter guff. Is that the best you can do?
Even in 1707 the Unionists then were not so witless, to propose forced conversion to £ Sterling following Union. Both £Scots and £Sterling continued being used by Scots into the middle of the 18th century. £Scots disappeared very, very slowly through desuetude.
£Sterling will continue to be used in Scotland. Your argument is just plain nonsense. Your reference to Scots being “terrified” at the prospect of £ Scots is not a matter of you knowledge, but your ardent hope. You are wantonly selling fear. You must be desperate, to peddle it.
I endorse tre comment on Common Weal
Albeit I work with them, on occasion…and am delighted to do so
Sir Mervyn King, on sterlingisation after independence ….. now. In the ‘Scotsman’:
“I was disappointed in both sides in the referendum. I thought that there was an answer that would solve the independence question – the currency issue. And that is that nothing happens. Scotland just carries on using sterling,” he said.
“I think that would have been totally feasible there was no need for an independent currency, that wouldn’t have posed any threat or difficulty for an independent Scotland. And I see absolutely no reason why it would have caused a problem for the Bank of England to allow banks to keep on functioning in Scotland.”
There is somebody speaking who really is not interested in Scotland, and is happy to see it captured as a helpless economic dependency of rUK, and he must know it, or he should; sterlingisation is the sterilisation of independence.
Me knows that
i have little regard for him
But he’s not that stupid
There is absolutely no force. Anyone that wants to keep their savings in sterling, a sterling bank account, sterling cards etc is welcome to do so. Ruth Davidson tells me her £310 a day will be going into the mattress in used £20 notes.
But that last’s only a rumour (for the record)