IN last Sunday’s edition, National reporter Hamish Morrison used the moment when Douglas Ross went off on a wee rant in the House of Commons, complaining about the SNP’s lack of policy on the currency which Scotland would use after independence, as a hook to explore how that policy has evolved recently.

Trying not to sound just like a teacher, the article was a good “Sunday” piece, with extensive analysis. It did not really get much beyond the 2019 SNP conference decision to set up the new currency as soon as practicable. That was news back in the day when Theresa May was prime minister, and Ruth Davidson was promising strong opposition to “another divisive referendum”.

For Andrew Wilson, the First Minister’s closest economic adviser, hell could easily have frozen over before Scotland has its own currency. He has defined six tests for issuing a Scottish currency. Four of them are meaningless. Passing the two meaningful tests – around the willingness of markets to hold Scottish Government debt, and ensuring that Scotland’s external accounts have a sustainable balance – will take many years.

Angus MacNeil MP takes the exactly opposite approach, believing it should be possible to set up a Scottish currency in a year. He cites the experience of Estonia and Slovakia. Slovakia became a country because its populist, authoritarian prime minister did not like the democratic tendencies of the Czech government. Maybe mutual personal loathing among political leaders should be sufficient to cause a country to dissolve. Ian Blackford would then simply need to shout “liar” loudly, and often, enough, and Scotland would achieve its independence.

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In much the same way, in 1991 Estonia was in a state of economic siege. It created a currency just as the Soviet Union crumbled. It was simply impossible for it to use the rouble. And this, of course, is the weakness of indefinite sterlingisation. The Scottish Government would be dependent on other countries’ financial institutions continuing to provide the country with liquidity.

We really do not want Scotland to be like either Slovakia, or Estonia. Comparing them with Scotland, both countries had small, simple, barely monetised economies when they became independent. Specifically, central planning prevented the formation of a large financial sector.

Rush into independence, making life too hard for Scotland’s asset managers, and they might easily be frightened into moving to England. If you are thinking “No great loss”, remember the political maxim to keep your friends close, and your enemies closer.

Hamish Morrison’s piece should have discussed recent developments in the debate on the SNP’s currency policy. In November 2021, under pressure from activists marshalled by Tim Rideout, the party agreed to hold a National Assembly to discuss principles which would underpin the establishment of the Scottish Central Bank. That debate will not be about the design of Scottish banknotes. Apart from anything else, by the time Scotland becomes independent, banknotes will be a curiosity.

Instead, expect that National Assembly to confirm that when it comes to practical policy aimed at ensuring the efficient management of the Scottish financial sector, there is very little difference between Andrew Wilson’s and Tim Rideout’s approaches.

CENTRAL banks exist in their current form because there are too many bankers who are bit like Fred Goodwin. Banking is a business in which it is easy to make money quickly. Unfortunately, it is also possible to lose it even more quickly.

That habit of banks going bust has led most countries to create a central bank to oversee the activities of commercial banks and to provide funding to any commercial bank about to go bankrupt because other commercial banks will not do so.

Central banks started to take on that role in the mid-19th century as they gradually became the only issuers of bank notes. Scottish banks do not really issue their own notes, because every note must be fully backed by securities held by the Bank of England.

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In principle, it could replace the Scottish notes at any time. It seems entirely reasonable that the Scottish Central Bank should be the country’s ultimate monetary authority. The National Assembly needs to decide when, and how.

Only then will the Scottish Central Bank be able to keep the banking system working. Most of the time, it can carry on working in the background, with commercial banks providing each other with funding, confident that today’s advances will be repaid tomorrow. When that confidence goes, we have a banking crisis. The central bank has to step in, and restore confidence in the market, and it does that by making available funding with almost no limits.

It would be good if the National Assembly were to look to countries other than the UK for examples of what success in central banking looks like. For example, Canada and Australia have never had a substantial banking crisis. Essentially, they don’t trust their bankers to get it right. Their banks seem rather dull in good times. Then, in the bad times, they are pleasingly stable.

Central banks are public institutions and should be bulwarks against the chaos which unbridled financial markets can cause all too easily. They tend to work closely together. Sterlingisation ties Scotland to the Bank of England, and the UK, indefinitely. A Scottish currency is not just a tool for greater financial stability, but could also be important in enabling a pivot towards greater integration with Europe.