13 February 2014

The pound or groat in your pocket

Anent yesterday's post, and strictly for those obsessed with the minutiae of currency connsiderations, here is the take of Larry Elliott of The Guardian on some of the options open to a Scottish Government on the currency question:
Option one is to do nothing. Nicola Sturgeon, Scotland's deputy first minister, says the joint pledge by Osborne, Balls and Alexander amounts to bullying on the part of a campaign panicked by the narrowing of the no camp's opinion poll lead. The SNP could assume that London is bluffing, aware that the rest of the UK would suffer significant collateral damage in the event of a messy divorce that left Scotland scrabbling around for a new currency. In the short term, that is likely to be the response.
Option number two is to assume that the three main Westminster parties mean what they say and quietly agree to accept whatever terms the Treasury and the Bank of England demand. There will be a high-stakes poker game if Scotland votes yes to independence: while London does not hold all the cards, it has most of the good ones. Put simply, an independent Scotland would need a monetary union with the rest of the UK more than the rest of the UK would need a monetary union with Scotland.
Option number three would involve Scotland continuing to use the pound even if London said it couldn't. This sounds far-fetched, but the free-market Adam Smith Institute says it is both feasible and sensible. The institute's research director Sam Bowman said Panama, Ecuador and El Salvador all used the US dollar without permission, so there was no reason Scotland could not use the pound without Westminster's permission. What it would mean is that the Bank of England would not act as the lender of last resort for Scottish banks or as a guarantor for an Edinburgh government, but according to Bowman this would be no bad thing as it would deter irresponsible lending. "An independent Scotland that used the pound as its base currency without the English government's permission, with banks continuing to issue notes privately and private citizens free to choose any currency they wanted, would probably have a more stable financial system and economy than England itself".

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