It’s Not About about the Money Money Money
With all the claims and counter-claims firing back and forth in the referendum debate, it’s no wonder that some folk can’t make up their minds. When Holyrood puts forward one position it is then contested by Westminster and voters are left having to ask themselves which bunch of slimy politicians they find most trustworthy. Who’s more likely to tell you the truth, Salmond or Cameron? Darling might be the face at the top of the no campaign, but as a minister whose party sits in opposition, and remains likely to do so following the next general election in 2015, he’s not in any position to make promises or guarantees. In the no campaign, Cameron is still very much in charge.
For some time the most contentious issue of the debate lay in whether an independent Scotland would gain automatic entry into the EU. Now, thanks to Jean-Claude Junker (and perhaps in no small part thanks to Cameron himself, who spent the run up to Junker’s expected appointment campaigning against the majority and certainly rubbed the president-elect up in all the wrong ways) this matter has been put to bed. Even the pro-union press has reported, somewhat unenthusiastically, that Junker’s office have made it clear that a ‘special case’ would be made for Scotland as we already satisfy all of the necessary criteria to be in the EU.
As one question is resolved another remains and the issue of currency is the next great hurdle. Salmond says we will use the £ Sterling, Cameron says he won’t allow it, even though a government insider has come out to say, months ago, that ‘of course’ Westminster would agree to a currency union following a yes vote. It is in everyone’s interests to do so. Again the electorate are left asking themselves who to believe: smug Alex Salmond or duplicitous David Cameron.
It’s understandable why the question of what currency might be used following independence is such a worry for many no voters and undecideds. People want to know if they’ll have a pocket full of pounds, euros or perhaps even ‘albas’ following the referendum, but again, when one side says one thing and another says something else, here we are again, stuck in the middle trying to make sense of the clues. In the UK, with no written constitution, so much is decided through the interpretation of precedent. Bearing this in mind, to try and get to grips with future possibilities, it makes sense to look at how such things have been approached in the past. So let us consider our Celtic cousins to the west.
Ireland declared independence from the UK in 1922, however the Irish Free State did not bring in its own currency until 1928. This new currency, the punt, was pegged at 1:1 to the British pound, meaning that both currencies held the exact same value. Sterling continued to be accepted in Ireland even if the punt was not accepted in the remainder of the UK. (A familiar experience for anyone who has ever attempted to spend their Scottish bank notes in London.) This situation continued for another 51 years. It wasn’t until the 1970s that the Irish punt broke away from its equal value standing with £ Sterling; an exchange rate was introduced on 30th March 1979. For anyone following the currency debate this entire scenario will sound familiar. Salmond’s argument certainly has precedent on its side.The question is, if it was OK for the Irish Free State to run its currency in this manner, why should it be a problem for Scotland?
Interestingly, Ireland, in terms of GDP per capita, now ranks as the third-richest country in Europe (behind Austria and Luxembourg but well ahead of the UK). However, we can’t just measure a country’s success in financial terms, no matter how much The City of London might want us to, so let us consider the Where-to-be-born Index (latterly known as the Quality-of-Life Index). This international ranking, measured by The Economist, takes into consideration material well-being alongside other considerations such as life expectancy, political freedom, job security, gender equality, crime, corruption and governance. Ireland ranks 12th in the world while the UK trails behind in 27th place.
Now, I know what you’re thinking. Ireland? Isn’t this the same Ireland whose banking system went into meltdown when the global recession hit and had to be bailed out by the European Central Bank? Well, yes, it is. Yet despite this great hardship Ireland is still doing better than the UK who had no European bailout. Before the banking crisis took hold Ireland was actually ranked 1st in the Quality-of-Life Index and was considered to give its citizens the best quality of life in the world. In the last ten years Ireland took a bigger hit than the UK, but Ireland’s citizens still fare better than we do. So here’s something that we can be sure of, Irish independence can only have been a good thing for the Irish, and even a small country, with a relatively small oil industry, can make a success of itself in difficult times provided it has full control of its own affairs.
Ireland is not the only nation to declare independence from the UK and then continue to use £ Sterling. Australia (currently ranked 2nd in the Where-to-be-born Index, just behind Switzerland) also maintained the pound for some time after becoming independent from the UK under the Constitution of Australia in 1901. This said, the currencies of Australia are a fair bit more complicated than those of Ireland, at various points Australia has used the Australian dollar, Australian pound, the holey dollar (essentially a vandalised Spanish dollar) and if you follow the money trail all they way back to the first 25 years of settlement, then, thanks to a shortage of coins, the real currency was rum.
It wasn’t until 1817 that the Bank of New South Wales was established and paper money was released, denominated in pounds. After federation in 1901, the Australian government took control of currency and later, in 1910, the Australian pound was introduced. However, the newly established Australian pound was pegged to £ Sterling at a rate of 1:1 and did not become officially distinct from the pound until 1931 when the United Kingdom itself abandoned the Gold Standard. Even so, the Australian pound continued to be used until 1966 when the Australian dollar was introduced.
Living in the UK and using £ Sterling, a currency union sounds like something rather novel. We are familiar, of course, with the Euro, but this was a union that we elected to stay out of. The truth is though, currency unions are not as rare as we might think. Aside from the Sterling zones that existed in various places in The Commonwealth there have also been many historic shared currencies, such as the Scandinavian Monetary Union (Sweden, Denmark, Norway), which itself was inspired by the Latin Monetary Union (France, Belgium, Italy, Switzerland, Spain, Greece, Romania, Bulgaria, and others). These are both now defunct, and have, in part, been replaced by the Euro. Then there is the currency union of the Hong Kong Dollar (covering Hong Kong and Macau), while the Singapore dollar and Brunei dollar are pinned to one another with a 1:1 exchange rate, the Swiss franc has been shared with Liechtenstein since 1924. Currency unions come and currency unions go. Some are replaced by independent currencies, some are replaced by new currency unions, while others simply remain.
If an independent Scotland was to enter either a formal or an informal currency union with the rest of the UK then this is something we would be committed to for the foreseeable future. That said, it is not something that anyone in government in Holyrood has the power to commit us to permanently. Future Scottish governments could set up a separate Scottish currency if they saw fit to do so, or we may find, say 30 years down the line, that the best thing for Scotland might be to join a more stable Euro, or perhaps the currency union between an independent Scotland and the rest of the UK will endure. This is not something that we know now, nor is it a question we can currently find the answer to. All answers are pure speculation because these are decisions that can only be made in the future. The real question that voters need to answer is whether they would like Scotland to have the power to make such decisions, or if that power should only be wielded by London.
£ Sterling, like the UK itself, has had a long and chequered history. The anti-independence campaign would have you believe that Scotland’s continued use of the pound would be like Panama using the US dollar. But anyone can see that we have more in common with a country like Ireland than any banana republic. There is nothing to stop an independent Scotland from using £ Sterling, nor is it even in the interests of the UK government to do so. So, when you go to cast your vote on the 18th of September, if the currency question is the one thing holding you back, then remember your Irish neighbours who said yes, and never looked back.