12 February 2014

They're all agin us ...

So the major UK political parties are united in their efforts to deny an independent Scotland the use of the pound sterling.  The Guardian reports:

Britain's main political parties are drawing up plans to deliver a powerful message to the Scottish people that the remainder of the UK will refuse to form a currency union with Scotland if voters endorse independence in the referendum in September.
Amid strong polling evidence that financial matters have become the decisive factor in voters' minds, George Osborne, Danny Alexander and Ed Balls are each planning to deliver an unequivocal warning that an independent Scotland could not keep the pound.
Of course, if and when Scotland were to become independent, the UK authorities could not actually prevent the pound circulating in Scotland, much as it does at present (whether or not Scotland introduced an alternative currency).  But, in such circumstances, the new Scottish government and its monetary authorities would have no influence over matters such as the level of interest rates.  Would this matter much in the short term?  There are plenty of examples of countries using foreign currencies as their principal means of exchange - such as the use of the dollar in much of central America or the use of the euro in eastern Europe.  Even now, it is still possible to have a UK bank account in euros (I have one myself).  And the larger shops in the touristy areas of London and Edinburgh will accept euros in payment for goods.  So the existence of parallel currencies is not impossible.  Indeed, whatever happens with the introduction of a separate currency and regardless of the UK authorities’ attempts to quash a sterling currency union, it is impossible to imagine a situation where the pound would not continue to circulate freely in Scotland.

Furthermore, it is difficult to believe that - if push came to shove - London politicians would actively seek to insist that Scotland should introduce a separate currency/  In such a deeply integrated UK economy, what would be the value to any of the parties in forcing cross border companies to set up parallel currency operations and introduce exchange transaction costs?

So, yes. a currency union has its own problems.  But they are not insuperable.  And perhaps the politicians might be prepared to give a little and take a little.


1 comment:

Adam Smith said...

The only correct solution is for Scotland to use the euro - which the EU will demand anyway. And it will suit you expats.
Salmond may as ever want his cake and eat it but UK pliticians are quite right on this one.
PS not heard much from you of late on George saving the UK economy.