Growth Commission Replies – Sort Of

SNP branches and the recent party National Assemblies have been provided with a handy, seven-page summary of Andrew Wilson’s Growth Commission report. There is no name on the summary, but it clearly reads as the handiwork of Andrew or someone close to the commission. For the most part, it is crisply factual until it gets to the vexed subject of what currency an independent Scotland should use – notoriously, the commission recommends keeping Sterling.

At this point the author gets a trifle testy, probably because so many in the Yes movement want a new Scottish currency and can’t see the point of remaining subservient to monetary policy and interest rates still being set in London. Let me quote from the anonymous precis:

“Despite some scare stories to the contrary (including from some pro-independence outlets and supporters), the fact remains that Scotland’s currency choice will be for the voters in Scotland to decide. We may decide to keep Sterling for an extended period (Ireland kept Sterling for six years after 1922, before introducing the Punt in 1928, which was pegged 1:1 with Sterling for 51 years before entering the EU’s Exchange Rate Mechanism in 1978), or we may decide to ditch it after a month…”

For starters, references to “scare stories” from unspecified “outlets” is hardly comradely language – I presume Bella is one such “outlet”. The Growth Report is not SNP policy so far but merely (we are told) designed to make recommendations and stimulate discussion in the independence movement. Referring to honest disagreements over currency as “scare stories” does promote dialogue. On the contrary, it is designed to close debate down.

Secondly, saying that “Scotland’s currency choice will be for the voters in Scotland to decide” is both fatuous and deliberately misleading. Of course, the currency choice at independence will be decided by the sovereign will of the Scottish people – as will all other major decisions. The real point at issue is what precise currency choice will the SNP recommend to voters come IndyRef2? On this point, the Growth Report is horribly vague, suggesting we should keep Sterling for an indeterminate period.

No sensible person suggests a new currency can be implemented on Day One of independence. But voters have a right to know what currency the SNP leadership thinks is best. Not telling them – or suggesting that the matter will be left in limbo for a decade – is guaranteed to provoke guffaws on the doorsteps.

IRISH LESSONS…

Incidentally, the reference in the Growth Report summary to Ireland is a red herring. True, independent Ireland kept the UK pound for the first six years. But there was the slight matter of a civil war to get out of the way before reconstructing the economy. It’s also the case that UK institutions bent over backwards to help the new “Dominion” function. The Bank of England continued to manage the Irish government’s borrowing, which clearly bolstered Ireland’s initial credit rating and ability to issue Sterling-denominated bonds. That help won’t be available for indy Scotland.

Ireland did fix its Punt 1:1 with Sterling till 2002. But for a lot of this period, today’s instantaneous, electronic transfer of money did not exist. As a result, financial settlements between the Irish Central Bank and other global financial institutions required the laborious and costly physical transfer of gold or other assets. This is techy but the upshot was that Ireland could maintain a differential in its own interest rates relative to London. Today, if indy Scotland retained Sterling – or indeed fixed a Scottish pound 1:1 with the English currency – our interest rates would be in lockstep with whatever the Bank of England decreed. To misquote a certain Jacob Rees-Mogg, that would leave indy Scotland still an economic vassal state to the City of London.

…AND BALTIC LESSONS

How long would it take to establish a Scottish currency? The nearest recent example of creating a currency from scratch is in the three Baltic states – Lithuania, Latvia and Estonia. They took three years to get their currencies up and running, after exiting the old Soviet Union.

What about amassing foreign currency reserves before launching a Scottish currency? Here, we in a better position than the Baltic states. Folk or companies requiring new Scottish pounds (to pay taxes, for instance) would buy them from the Scottish monetary authorities. To do so, people would pay with their existing bank holdings of Sterling. In other words, issuing each new Scottish pound automatically creates Sterling reserves.

There is an urgency is establishing a Scottish currency after independence. With it, the Scottish government will be able to sell its bonds to Scots citizens and local financial institutions. Our public debt will be owned locally. Keep Sterling and the Scottish government will have to go cap in hand to the City of London. Expect the City to demand austerity policies north of the border before handing over a penny. Independence equals freedom only when we finance ourselves.

Comments (36)

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  1. Josef Ó Luain says:

    That we don’t have a settled currency option at this point-in-the-game is just plain scary. With Independence we’ll need a Scottish-pound for the sake of national self respect and international credibility, not to mention economic independence from the irredeemably corrupt BOE.

  2. Doug Daniel says:

    “No sensible person suggests a new currency can be implemented on Day One of independence.”

    This is literally the position being put forward by Common Weal – although granted, it is suggesting Day One of independence be delayed until that currency is set up.

    Honest disagreements? There are articles out there making it sound like an independent Scotland using Sterling for a wee period would be worse than remaining in the union, with massive hyperbole about basically being run by international banks. The Growth Commission’s suggested time-frame for how long it would take for Scotland to be in a position to move to a new currency (between 5 and 10 years) is being talked of as if it is calling for Sterling to be used for a MINIMUM of 10 years. There are claims the Growth Commission recommendations mean no Scottish Central Bank, despite setting up an SCB being one of the 50 key recommendations of the report – that last one is all over a leaflet that was being dished out by people at the National Assemblies, in fact (although cunningly implied rather than outright stated).

    These are not the hallmarks of “honest disagreements”. In fact, let’s be honest here – calling the Irish example a “red herring” while claiming examples of setting up new currencies from 27 years ago are somehow relevant is not exactly straight-talking. Unless the Soviets were using internet banking in 1991, but that seems unlikely given the first web browser was made publicly available that same year. It’s also rather misleading to suggest that having our own currency would somehow give us the option of doing whatever we like with interest rates – across Europe, interest rates are broadly similar (Czechia 1.25%, Denmark 0.05%, Eurozone 0%, Hungary 0.9%, Norway 0.5%, Poland 1.5%, Sweden -0.5%, Switzerland -0.75%, UK 0.75%). Independence will not prevent us having to operate within that same economic context.

    Here’s an interesting video from Glasgow University’s former Professor of International Economic History, Catherine Schenk, on currency options available to Scotland, that everybody should watch: https://www.youtube.com/watch?v=RtFE60lSttg A key line near the start: “the idea that Scotland would ever have monetary independence realistically is rather an illusion, that Scotland will be operating as a small, open economy in a very globalised context of international capital markets and would only be able to operate an independent monetary policy if it were to impose quite drastic controls in its relations with other countries, which would not be in its economic interests.”

    The reality is the currency debate boils down to this: is transitioning to a new currency important enough to delay Day One of independence, or is it more important to get on with using all the other powers independence will bring?

    1. Graeme Purves says:

      If a Scottish currency is the direction of travel, why did the Growth Commission plump for a period as long as “between 5 and 10 years” when the Baltic States have shown that it can be done in around 3?

      1. Doug Daniel says:

        The 5-10 years is about how long they GC think it would take for it to become advantageous for Scotland to move to a new currency, rather than how long it would take to set it up. The video I linked to gives a good indication of where that estimate probably came from.

        Have the Baltic states shown it takes three years to go from planning a new currency to customers being able to make online transactions in that currency? Or did they show a currency could be set up in three years over a quarter of a century ago? Even if it IS possible, why is it worth delaying independence even a day longer than necessary just so we can have our own currency on Day One?

        1. Me Bungo Pony says:

          Slovakia declared its intention to become an independent state in November 1992. On 1st January 1993 it became an independent state. On 8th February 1993, it adopted the Slovakian Koruna as its currency. Setting up a currency is not as complicated as many would have us believe.

          1. Alexander Ritchie (Sandy) says:

            Czechoslovakia was only a country for about 74 years.. Part of the Austrian Hungarian empire before that…Czechs and Slovaks werenae exactly the best of pals either…unlike the English and Scots (except for extreme SNats of course) having fought, drank and loved together for over 300 years

          2. Me Bungo Pony says:

            What has that baseless little homily got to do with currency? No wonder unionists are losing the arguments. Coherency doesn’t seem to be in their skill set.

          3. Alexander Ritchie says:

            Koruna was so successful…they changed it to the Euro…I suspect the SNat pound would follow suit…and monetary policy be dictated by the German economy

          4. Me Bungo Pony says:

            The Slovakian Koruna was a perfectly functional currency. It was gaining in value against the Euro in the ten years prior to joining the Eurozone. Slovakia, having full control of its own sovereignty chose to join the Euro, five years after joining the EU, because they wanted the advantages they believed the Euro offered in the way of frictionless trade. It had nothing to do with the strength or otherwise of the Koruna.

            This, I feel is one of the weaknesses of the Unionist arguments. They rely on people not checking up on them and exposing the lack of honesty at their heart.

          5. Alexander Ritchie says:

            more tripe by a Nationalist…countries don’t need to join the Euro to have frictionless trade…GB ain’t in the Euro and has frictionless trade with EU…what do you think all the so called negotiations about Brexit are about …God give me strength

          6. Me Bungo Pony says:

            Getting beyond the “unionist” bluster, the point you tried to make initially was that Slovakia switched from the Koruna to the Euro after 16 years because the Koruna was not a success. I pointed out that this was not the case and the facts backed me up on this. Your reaction was to make a claim that is patently nonsense in an offensive manner. A clear sign you are losing the argument.

            Any trade that requires a currency conversion (with commissions etc needing to be paid) quite clearly and obviously has more in the way of friction than one that does not require it. Can you not just accept that without getting angry? Slovakia no doubt had additional reasons for switching to the Euro, but it had nothing to do with the strength of the Koruna. Again, can you not just accept that without getting angry?

          7. Alexander Ritchie says:

            Annoyed yes …have a read of your posts and ask yerself was any of your petty slurs re unionists required …if you can’t take it…don’t dish it…we can have a sensible discussion without the shit…assuming you’re a grown up..

          8. Me Bungo Pony says:

            So basically the answer to my questions is no. A bit of self awareness might be in order for yourself. The irony of your last post made me laugh.

          9. Me Bungo Pony says:

            FYI, as you alluded to, but did not expand on, the Czechs and Slovaks had been “fighting, drinking and loving together” under the Habsburg monarchy, and latterly Czechoslovakia, for well over 400 years before deciding to become independent states in their own right. So the irrelevant homily that started this little exchange has no basis; ie it was “baseless”.

          10. Alexander Ritchie says:

            The Split of Czechoslovakia: A Defeat or a Victory?

            (The abstract of a talk by Jiri Pehe at the conference on “Czech and Slovak ‘Roads to Europe’ 1989-2004”, CERI, Paris, 8 November 2004)

            The split of Czechoslovakia on January 1, 1993 was not entirely inevitable, but the political and economic costs of keeping the country together would have been extremely high.

            The Main Reasons for the Country’s Disintegration

            1. Mutual historical grievances
            2. The asymmetrical nature of a two-state federation
            3. Incompatible political spectrums after the 1992 elections
            5. Czech and Slovak nationalism
            4. A lack of democratic experience in both countries

          11. Me Bungo Pony says:

            Apart from point “4.” (lack of democratic experience – don’t know what that has to do with it – sounds rather patronising) you could be talking about the situation within the UK. It still does not back up your little homily or your implication that the Slovak Koruna was a failed currency.

        2. Cos it wouldn’t be our own currency?

        3. Graeme Purves says:

          What are the reasons it might take longer to establish a new currency now than it did in the early 1990s? I can’t think of any. I suspect the Growth Commission plucked ” between 5 and 10 years” out of the air because the Balernoists don’t favour a Scottish currency.

          I am not seeking to argue that independence should be delayed until we have our own currency. I am arguing that a Scottish currency could be established within around 3 years of independence, if not more quickly. Your point about online transactions is a red herring. Why might it take up to 10 years to make arrangements for customers to make online transactions in a Scottish currency?

          1. Doug Daniel says:

            Again, the 5-10 years thing is not how long it would take to set up a new currency – it’s an estimate of how long the GC think it would take to meet the conditions they put forward for when it’d be in Scotland’s interests to move from Sterling to a new currency. They think preparations should be put in place straight away for moving to a new currency, but they don’t think the changeover should actually happen until their tests show it would be beneficial to do so. The number isn’t plucked from thin air though, it’s based on examples of similar situations, including the one discussed in that video I linked to.

            As for why it might take longer to set up a currency now than in the 1990s? Internet banking. The computer systems in banks are far more complex than they were a quarter of a century ago. For one thing, a new currency would require a brand new payment system to be set up (we couldn’t use BACS, CHAPS or Faster Payments as they are UK payment systems – we’d have to have our own one). The last time a new payment system was set up here – Faster Payments – it was meant to be done in two years, but it took at least four, not least because some banks took far longer to be ready than others. One look at the messes RBS and TSB have gotten themselves into in recent months highlights that when it comes to banks implementing major IT changes, nothing is trivial. Maybe everything would go without a hitch – most likely it wouldn’t. And I say that as someone who has worked in a bank’s software development department.

            But none of this really matters if we’re both agreed that the currency on Day One of independence should be Sterling, because that’s the only real issue here – what currency do we tell people they will be using the first day of independence?

          2. I’d be interested to know whether your argument comes form political expediency or pragmatism Doug? It seems to swing between the two?
            Do you want to keep Sterling because you don’t believe older voters will back indy without it?

          3. Graeme Purves says:

            So you appear to be acknowledging that even with the technical challenges and potential glitches you have identified, it would probably be possible to establish a Scottish currency in around 5 years? I could live with that, though I think it is unduly pessimistic. Roger Mullin acknowledged in his interview with Broadcasting Scotland that a move to a new currency could be made significantly more rapidly than the Growth Commission had indicated.

            The purpose of the conditions, of course, is not to facilitate the transition to a Scottish currency, but to try to prevent it ever happening (shades of Gordon Brown and his 5 economic tests). It’s a particularly blatant mechanism for kicking the can down the road.

          4. Doug Daniel says:

            “I’d be interested to know whether your argument comes form political expediency or pragmatism Doug? It seems to swing between the two?
            Do you want to keep Sterling because you don’t believe older voters will back indy without it?”

            I’d say both. In terms of pragmatism, I simply don’t accept that the choice of currency is so important that it’s worth delaying the day we remove ourselves from the clutches of Westminster until we’ve set it up. Independence is a process, and that process will continue past the day we formally become an independent state, and I think the arguments for waiting until we’ve set it up ignore that fact. The choice of currency doesn’t make us any more or less independent – I wouldn’t say Denmark is more independent than Finland just because the Finns use the Euro, or that Sweden is more independent than Denmark just because the Danish Kroner is pegged to the Euro.

            In terms of the politics, I’ve yet to meet someone who says “I voted No in 2014 because you weren’t promising a new currency.” From what No-voting friends have told me, it wasn’t keeping Sterling that put folk off, it was the idea we’d somehow force rUK into a formal currency union, as it had a distinct whiff of making things up on the hoof because we thought it was what they wanted to hear, rather than promising things we’d properly thought about and that were entirely within our gift to promise. I don’t know any independence supporters who were punting that line in the genuine belief that we’d be using Sterling as anything other than a transition currency, yet what we were proposing sounded far more permanent, and I think folk cottoned on to that and rightly asked themselves why rUK would agree to go to the bother of setting up a permanent structure only for Scotland to leave it after a few years. I think what the GC propose is far more realistic and sellable on doors (we know from polling that people didn’t believe Scotland could be prevented from using Sterling unilaterally).

            “The purpose of the conditions, of course, is not to facilitate the transition to a Scottish currency, but to try to prevent it ever happening (shades of Gordon Brown and his 5 economic tests). It’s a particularly blatant mechanism for kicking the can down the road.”

            I think that’s needlessly cynical, to be honest – bear in mind the Growth Commission specifically calls it a “transition period”, and the only reason their six tests wouldn’t be met is if we’re all wrong and Scotland isn’t being held back by being in the UK after all. The only change I would really make to the GC recommendations is the sense of urgency – I think there’s an argument that the GC recommendations mean Sterling is seen as the default, whereas I’d prefer a new currency is the default, so when it gets to a point where it’s deemed that neither option is better than the other, the default option wins out. Essentially, “use Sterling for as long as we can” vs “use Sterling for as long as we need to”. The time-scale might be pretty much identical in both cases, but there’s just a slightly different emphasis.

          5. Graeme Purves says:

            So we are not that far apart. I favour “use Sterling for as long as we need to” too. I don’t think that needs to be longer than 5 years.

      2. e.j. churchill says:

        In 1940, the Baltic states deposited their gold reserves with the Bank for International Settlements. In 1991, with independance, their gold was given back to the central banks, Plus individual income was high, and they are savers.

        Both matter.

        -rgds

  3. Sandy Ritchie says:

    Kerevan misses the point re retaining the pound. Its purely a political ploy because the Nationalist Government recognises that any change in currency from the pound Sterling is unpopular …and a big negative in the minds of voters..especially we older votes
    So although it makes sense to have our own currency ..for the reasons that Kerevan states.. it’ll continue to be a source of concern both for the SNP, and those who need to be persuaded to vote yes…for different reasons

    1. It may well be Sandy – but if its a political choice that also has consequences the other way with people seeing it as being endlessly cautious and detrimental to our autonomy. It may well win over some feart of the concept of a new currency but equally that capitulation may put off younger or more progressive voters who see the clear benefits

      1. Alexander Ritchie (Sandy) says:

        As a Labour “yoon” I agree that it doesn’t make sense for an Indy Scotland to be tied to the pound with England setting the bank rate…that’s monetary subservience…but there’s an undoubted risk for those with savings to vote for a country with a new currency …money would undoubtedly be moved to England…in the short term at least

  4. Graeme NcCormick says:

    The Growth Commission has built its case on the premise that we are and will be a debtor state and in order to reassure the international markets and show ourselves competent debtors we need the stability of a currency like Sterling.

    However the Commission failed to consider the alternative premise that we are a creditor state on Independence. The fact is that Scotland has the capacity to raise all the public funding it requires from our own resources, principally our land.

    That transforms our position and gives us the means to decide our currency. If the Scottish government used its existing powers it could raise all these funds now and drive the wedge we need to separate us economically from rUK.

    Furthermore it would enable Scottish entrepreneurs to have a huge adavantage over countries weighed down by chaotic and complicated fiscal regimes. .

    1. Willie says:

      Put simply I think Graeme makes the point that an independent Scotland would be in a better position than the residuary UK.

      Gaining independence however is the key. Thereafter within the intercourse of commercial trading and economic conditions an independent Scotland would be free to chart its own currency course.

      1. Alf Baird says:

        Yes, a debt-free Scotland holding as it would a disproportionate share of UK assets and exports suggests (which) currency might be less of an issue for Scotland so enabling us to have our own without much problem. Anyways the GB£ continues to wither and after Brexit may plummet. Most people are in debt so it matters less to them directly what the currency of their debt is, they are still in debt. How about creating a shadow currency, like the SNP should also have created shadow ministries for reserved powers – that is, if they really wanted to prepare for independence. It pays to be prepared, as the Boy Scouts might say. Really we should be free of Tory rule before Hard Brexit day.

  5. SleepingDog says:

    Ignoring for a moment the bloodsucking flea of Finance clinging to the wagging tail of Economics, and turning to the Dog of what Scotland actually needs, let us suppose a hostile environment for an Independent Scotland. Imagine fifth columnists within, speculators hovering above, an illegal blockade all about like we were Cuba and Iran rolled into one and jammed onto a hostile South UKarea, what use would currency be then? Could we do without it? What exactly do we need it for?

    As per article, servicing or paying back public debt. Also: private debt. Also: buying things we cannot produce locally, or membership of international bodies, payment of fines for breaking international laws, reparations and probably other stuff. We can already do things about some of these, and more when independent (like leave NATO, for example).

    Environmental reality pushes us towards creating a cyclical, regenerative economy where (nearly) all waste from processes is turned into input for others. Useful processes, not all the junk we have have now, which growth-demented snake-oil peddlars continue to lobby for. A cultural change that cut ties with corporate-captured states is going to be needed to make this acceptable. We will need green authoritarianism and environmental austerity to survive as a civilization, rejecting the financially-profitable-for-the-few-on-taxpayers’-back but in reality wealth-destroying unethical arms trade, offensive militarism and exploitative crap-consumerism. We need to minimize import and fossil-fuel and nuclear dependency and stop exporting waste and dumping problems on the rest of the world.

    Can we persuade Scots to make these changes? Can we even lower levels of personal debt in Scotland? If the answer to these questions is no, then I doubt the question of currency really matters at all.

  6. Alistair MacKichan says:

    The courageous, spirited, Scottish choice is to adopt our own Groat. It has historical roots, as a uniquely Scottish bond and treasure. It will be fought for and honoured in a way the pound will not, and the result will be a more prosperous sovereign country. Ditch the pound, with all its associations of a dishonourable, imperialistic British past, and rise up and be counted as a foundation and fortress in the world of commerce which will be trusted worldwide. Holyrood is desperate to retain the confidence of the English influenced Edinburgh establishment, and it is cowardly of us to cow-tow to Westminster via their plaintive cries for continuity, stability etc. When will we have the courage to be a people in our own right? Do we deserve the chance to “go it alone”?

    1. Doug Daniel says:

      Groats were just one of the many, many currencies Scotland used before we standardised, and they weren’t even unique to Scotland – they were used in England and Ireland as well. And naming a new currency after something that was worth four pence? The media would have a field day.

      The inevitable arguments over what the currency should be named are yet another reason to leave this until we’re already independent – arguing over whether to call it a groat, merk or unicorn is hardly going to convince folk independence is about looking into the future rather than harking back to the past.

      1. Me Bungo Pony says:

        Merk or Crown for me (though I realise there might be a bit of a caffuffle from republicans if the latter were used – though several European republics use it). But you are right. The name is unimportant for now.

        1. David Allan says:

          Let’s be serious here -Kevin Bridges has the name spot on – It’s got to be Scottish Smackaroonies! Smackers the notes and Roonies that’s the coinage !

          It’s a vote winner!

  7. George Anderson says:

    This is interesting. The final sentence is very important “Independence equals freedom, only when we finance ourselves” I agree with this and with much of this article. I accept that Scotland can’t have a new currency on day one of independence, and will require about 3 years to set-up the legislation and institutions required for its Central Bank and currency arrangements. My own view is that in such circumstances we should set up a full-reserve currency as the Scottish domestic currency and ditch the fractional-reserve system entirely.
    The New Scottish currency would not be used for international exchange, and should not be available for purchase as a commodity. It is not a commodity and should be used as a medium of exchange only, issued free to the central bank without charge. With a clean currency like this the Scottish Government would be able to control money supply and stop money speculators distorting the value of our currency. This is the safest way for the new Scotland.

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