Below is an article by Tim Worstall, a contributer to Forbes magazine, posted on Forbes.com this week (11/8/14). With full reference to Forbes and the author, I post this with no additional comments.
Alex Salmond Is Right; Of Course Scotland Would Be Able To Keep The Pound
One of the interesting little arguments over the coming Scottish vote on independence from the UK is the question of what currency a newly independent Scotland would use. A new Scottish pound may or may not be a good idea and there’s a certain problem with using the euro: it’s not entirely certain that the new Scotland would actually be in the European Union. Legally it appears not although a kludge to allow it to be seems the most likely outcome. That’s aside from whether using the euro would be a good idea or not: the answer there being probably not.
That leaves the country with the third option, continued use of the pound sterling. Down in London the politicians are shouting loudly that of course they wouldn’t permit such use. Mostly in an attempt to swing the vote against independence it has to be said. From the Tory side simply because they’ve historically been the Conservative and Unionist party and thus they wish to preserve said union, from the Labour side because they know that without their rock solid Scottish seats at Westminster they’d find it very hard to ever gain a governing majority again. There really are seats up there where they would elect a dead donkey if it wore a red rosette: we know this because there have been Scottish Labour MPs indistinguishable from dead donkeys, in intellect if not necessarily appearance.
So that’s why the spreading of fear, uncertainty and doubt over the question of the currency. But Alex Salmond (however grating it is to agree with the Wee Eck) is entirely correct here when he says that no one can actually stop Scotland from using the pound sterling if it so wishes to:
Alex Salmond has given his clearest indication yet that he would want an independent Scotland to keep the pound, even without a formal currency pact, after stating “we are keeping it, come what may”.
The first minister insisted, in an article for the Sunday Herald, that “there is literally nothing anyone can do to stop an independent Scotland using sterling, which is an international tradeable currency”.
Writing five days after a bruising encounter with Alistair Darling in STV’s live debate on independence, Salmond insisted that the UK parties were bluffing when they repeatedly ruled out a currency pact after independence.
Salmond argued there was clear economic and political logic for a formal agreement to share sterling and the Bank of England, as he tried to persuade voters in Scotland that he was correct to keep fighting for a deal. It would avoid UK businesses paying extra transaction costs to trade in Scotland, mean Scotland would pay its share of the national debt and allow UK politicians to honour the democratic will of Scottish voters who had backed independence, he wrote.
Yes, a deal would be better. But not necessary: both Panama and Ecuador (as well as vast swathes of the world’s illegal businesses) have the US dollar as their official currencies and that’s not as a result of their being either part of the US or any special arrangements with the Federal Reserve or anything. In an independent Scotland people would be able to buy and sell things in pounds without anyone in Westminster being able to do anything about it at all.
It might not be the most sensible arrangement: it would mean that independent Scotland would have no control over interest rates or the money supply, be unable to issue its own currency or even borrow in a currency it controlled, but it would most certainly be a possible outcome. Simply because no one at all has the power to make it not happen.
And if truth be told even if Scotland did create its own currency, or adopt the euro, then the pound sterling would almost certainly circulate in the country as a de facto, even if not de jure, legal tender anyway.
Tim WORSTALL – Author’s biography
I’m a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I’ve also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.
The author is a Forbes contributor. The opinions expressed are those of the writer.