THE Growth Commission’s long-awaited report is finally out and folk up and down Scotland will soon be debating in National Assemblies the various points raised. Whilst, there’s a lot to be positive about, it should come as no surprise that the topic of currency will be the most hotly debated.
The commission has recommended that an independent Scotland continue to use the pound sterling but, unlike the case made in 2014, it would do so without a formal currency union – we’d just buy sterling and circulate it in the economy.
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There are advantages to this option. Chief amongst them being familiarity and stability. We wouldn’t need to change anything on the ground, design new notes and coins, or create new bank accounts.
But there are significant downsides to this too. Sterlingisation means that Scotland would have no control over our currency. Whilst several small countries do use currency in this way just fine, most are very small compared to the total currency zone. Scotland makes up something close to 10% of the sterling currency zone, so decisions made which omit Scotland (as the Bank of England may do) could be omitting a substantial portion of the economy from their calculations.
More seriously is the combined commitment to sterlingisation and an austerity-driven “fiscal responsibility” charter. It’s easy for countries like Germany to run budget surpluses – they have a foreign trade surplus which means that €20 billion flows into the country every month – but if a sterlingised country has a trade deficit, that means money will be flowing out which cannot be replaced by printing more.
If the Government is also refusing to borrow money and run a fiscal deficit, then that outflow must be met by a deficit somewhere in the economy. That somewhere is your pocket and your credit card.
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There have been claims that this proposal is only temporary and that it would eventually lead to a Scottish currency. I do not believe it will. There are “six tests” in the report which would have to be met to transition to a Scottish currency. This is reminiscent of Gordon Brown’s “five economic tests” to be met before the UK joined the euro. These tests are too often set up as a barrier to block change.
Scotland cannot afford to be timorous, so let’s take on the challenge to discuss this report. My view: an independent Scotland doesn’t need a half-way measure. It needs an independent Scottish currency.
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Callum Baird, Editor of The National
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