Unanswered questions on currency give Unionists an open goal

THIS is an open letter to you from the Scottish Currency Group of which I am a member. I am a former government economist and senior civil servant in the Scottish Office.

I am not used to criticising ministers in public (!) and do so with great reluctance. But while the SCG supports Scottish independence, we must advise you that your present policy on currency in an independent Scotland is not only misguided but unsustainable and presents Unionists with an open goal which will be exploited in any forthcoming campaign.

We have presented our arguments at meetings with Jamie Hepburn but, given recent policy statements and correspondence, must conclude that – despite the rhetoric of a “listening government” – you have closed minds on this subject.

We welcome the Scottish Government’s belated recognition of the advantages of an independent Scotland having its own currency in the longer term but there remain two fundamental points on which we continue to differ.

Firstly, having our own currency is the key to enabling the post-independence government to pursue more effective policies to address priority issues such as the cost of living crisis, access to affordable housing, improving the NHS and tackling climate change.

Far from being a narrow technical issue best avoided in political campaigning, a Scottish pound, together with supporting institutions such as a Scottish Central Bank, will give the post-independence government much greater flexibility to ensure its economic and monetary policies can avoid austerity and deliver better outcomes.

READ MORE: UK Government Edinburgh HQ staffing details revealed

This is in stark contrast with the present situation in which the devolved government has to use sterling and balance its budget. The fact that currency is rarely raised by voters on the doorstep is because the crucial link between a Scottish pound and making progress on issues which resonate with voters has not been properly explained and is not understood.

The SCG has produced a user-friendly “pocket guide” to currency which could underpin a campaign to “shift the dial” on public support for independence.

Secondly, and of even greater immediate importance, the SCG cannot agree that retaining sterling for even a limited period after independence will ensure financial stability and an orderly transition to a Scottish pound.

On the contrary, this policy runs the most serious economic and political risks. The main risk is that keeping sterling for even a short while after independence will require access to the Bank of England sterling inter-bank payments system.

GRANTING such access is in the gift of the BoE and UK government. Were they to refuse access and a contingency plan was not in place, literally millions of day-to-day financial transactions in sterling by businesses and households throughout Scotland would be disrupted and the impact on the economy would be catastrophic.

Moreover, even if the BoE/UK government would not descend to such naked aggression against Scotland (which would harm the rUK economy too), it is surely likely that politicians in a UK government bitterly opposed to Scottish independence (whether led by the Conservatives or Labour) would threaten to deny access during the campaign leading up to a vote.

This would torpedo the Yes campaign, much as George Osborne’s intervention did in 2014, in that case regarding agreement to a sterling currency union.

The likelihood of this obvious threat as part of Project Fear 2.0 makes it essential that there is a contingency plan in place to mitigate against its impact. This should be the development of a Scottish pound inter-bank payments system overseen by a Scottish Central Bank. That requires action to be started well before the next Yes campaign.

This work could be funded privately through an independent Scottish Monetary Research Institute. The SCG is prepared to explore the feasibility of starting such preparatory work during 2024.

It is essential that a Scottish Central Bank and the arrangements for introducing a Scottish pound should already be in place by the date of formal Scottish independence so that the post-independence government would have all options open to it regarding the timing of introducing the new currency.

It is imperative that the SG dropsdoes not persist with its “just keep sterling until it is practicable to introduce a Scottish pound” policy line. At the very least, arrangementsplans should be in place to mitigate the severe risks inherent in this approach.

Oliver Cromwell is not my favourite political figure (!) but I would end by paraphrasing his plea for humility made in 1650 to the General Assembly of the Church of Scotland: “I beseech you, in the bowels of Christ, think it possible that you may be mistaken.”

Yours sincerely,

John Randall