On 19th November 1967 Prime Minister Harold Wilson made his famous “Pound In Your Pocket” speech. His government had just announced a devaluation of sterling and Wilson was anxious to reassure Joe Public that the everyday value of their wages and savings would remain unchanged.
Wilson went on national TV that night to explain that his clever devaluation measure – opposed by his own Chancellor – would allow the UK economy to “break out from the straitjacket” of boom and bust economics. Chuffing on his famous pipe he explained to a confused and alarmed public:
“From now the pound abroad is worth 14% or so less in terms of other currencies. It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued. What it does mean is that we shall now be able to sell more goods abroad on a competitive basis.”
We know now that Wilson’s fiscal adjustment was grasping at straws. The cost of imported goods rose, inflation soared, and the “pound in your pocket” did indeed lose value. In many ways November 1967 was a turning point in British politics. The Bank of England made it clear in no uncertain terms they were dictating economic policy and Wilson’s government were made to implement unpopular indirect taxation measures, cuts in public spending, and an attack on workers wages. All of which brought the UK’s golden age of post war social democracy to an abrupt end.
What followed the currency devaluation of November 1967 was an economic dark age of inflation, industrial decay, national strikes, power cuts and even an imposed 3 day week. By 1976 the British economy was in such a catastrophic mess the UK became the first advanced western economy to be rescued by an IMF bail out. Three years later Margaret Thatcher was elected and a neoliberal counter-revolution against social democracy rolled into town. Despite thirteen years of New Labour this is the political cul de sac we’re still parked in today
The lasting impact of November 1967 was to elevate a popular sensitivity to the trials and tribulations of the British currency on the international money markets. The phrase “the pound on your pocket” stuck although it’s a phrase more associated with fear than with any notion of national pride.
The last seven days in Scottish politics have been dominated by debate around currency, much of it absurd and irrational. A mature fact-based debate has been absent on the pro-Union No side. George Osbourne and Brian Wilson have joined hands to whip up a climate of fear and uncertainty over a future Scottish currency.
What ‘s been missing from all this is a useful Timeline. Like most on the Yes side I’m quietly confident that when the day arrives Scots will vote our country into existence and the celebrations will last long into the night. But then what?
The day after a Yes vote I’ll probably be out celebrating with friends, buying fizzy drinks with any pounds still left in my pocket. Our currency won’t have changed the morning after. What would follow the hangovers should be interesting, to say the least, perhaps the most politicised era in Scottish history, as a period of intense negotiation between representatives of Scotland and the British state commence, followed closely by the public . During this period 2014-2016 there is no dispute that sterling will still be in use.
At some point in 2016, according to the Scottish government’s timeline, negotiations will be concluded, Independence will be officially declared, and the first elections to an Independent Scottish parliament will take place later that year.
Even were it an Independent Scotland’s desired option immediate entrance to the Euro in the first few years of Independence is ruled out by the EC’s own rules which state a participating member state must first join the ERM II for at least two years in order to satisfy requirements to join the Eurozone. Under these rules Scotland would first need to introduce its own currency and then join the ERM II. So we can leave the Eurozone out of the equation for the time being.
I’d personally like to see Scotland move away from sterling and adopt our own currency. Its a good solid viable option which would create a stable currency as the backbone of our economic life. But should Scotland choose to use a separate Scottish currency this would take considerable time and planning to set up. The change from sterling to a Scottish pound would also require the consent of the governed through a post-Independence national referendum. The democratic and economic timelines complicate the idea of a Scottish pound in the first few transitional years.
So you don’t have to be an expert in economics or banking to conclude that the Independence timeline means that sterling will remain Scotland’s currency from Sept 2014 through most if not all of the first term of an Independent Scottish Parliament. It’s in everyone’s interest that this initial transition period – which will last for most of 2014-2020 – should go as smoothly as possible.
This isn’t delusional naivety on the part of us Scots, hoping London will fall into line, as has been suggested. Its common sense. The movement of people, goods and capital between Scotland and rUK will not stop after 2016. A British Chancellor, acting out of churlishness, wishing to undermine or jeopardise cross-border trade, or put obstacles in the way of families and friends moving between Scotland and England, would soon be shown the door of 11 Downing Street. For once thing its a near certainty the financial and corporate elites who bankroll the Tory party, and who rely on the unrestricted movement of their capital and goods, would hang him out to dry in the blink of an eye.
This was always going to be a silly debate based on fear from the No side but its better we have it now. The Great Currency Uncertainty is being cleared from the political field early in much the same way as The Great Euro Scare. Soon the No campaign will be trapped into a corner of their own making and forced to come out and explain their potential narratives for a devolved Scotland trapped inside a failing debt-ridden British state. They will soon have to explain the harsh realities ahead of a devolved Scotland locked into the wrong type of economy: one based primarily on banking and financial services rather than making things. Good luck to them with that.
Currency Choices For An Independent Scotland – a Scottish Government paper
Euro, Pound Sterling or Scottish Pound by Gordon MacIntryre-Kemp
The Pound Is Scotland’s Currency by John Swinney, 28th April 2013