IN this series of articles members of the Scottish Currency Group outline the case for a separate Scottish currency – the Scottish Pound – to be established as soon as possible after independence; highlight the transformational opportunities this will enable to address present economic and social challenges facing Scotland; and answer questions about how the change is likely to affect households and businesses in practice
SCOTTISH Government policy is that a new currency – the Scottish Pound– should be introduced “as soon as practicable” after independence.
The Scottish Currency Group article two weeks ago highlighted the many compelling economic advantages of having our own currency. In practice, exactly when to introduce the Scottish Pound will be a matter for the post-independence government, which will be best placed to take this decision in the light of circumstances prevailing at the time.
The priority of the current Scottish Government, rather than setting out its own preferences on timing or criteria, should be to ensure that everything necessary is put in place prior to formal independence so that the post-independence government has all options available to it, including introducing the new currency immediately or very soon after independence. We summarise these arrangements below.
The independence prospectus should explain how a new Scottish currency and Scottish Central Bank will be established and re-assure voters that the process of doing so, and the way a Scottish currency will then operate alongside other currencies, is straightforward and indeed normal in the modern world where people and organisations use multiple currencies.
When the decision is made to introduce the new currency, banks licensed to operate in Scotland will be able to offer customers accounts denominated in Scottish Pounds.
Soon afterwards, it will become a requirement that all payments to – and from – public organisations, including local authorities, should be made in the new currency. All tax payments will be in Scottish Pounds. People and private-sector organisations will be free to retain sterling accounts in banks operating outwith Scotland should they wish to do so. We expect that many companies, and most large ones, will continue to trade in sterling, the US dollar, the euro, or other currencies.
The following institutions and other arrangements need to be established by the present Scottish Government, mainly during the transition period between a Yes vote and formal independence, but in some cases with preparatory work beginning in advance of that:
- A Scottish Central Bank (SCB), owned and controlled by the Scottish Government. The precise status, functions and any mandate or degree of operational independence for the SCB need to be confirmed. It will require appropriate staff and financial reserves.
Substantial sterling reserves will be generated automatically through the process of exchanging sterling for Scottish Pounds when those with existing sterling accounts who wish to set up new accounts in the Scottish currency do so. International agreements may also be required.
Establishment of a Central Bank, and completion of these transitional steps, usually takes three to five years and we recommend the appointment of a programme team in good time before independence.
By the end of the transition phase, the SCB will, among other tasks, need to have designed and produced Scottish Pound notes and coins and to have developed an electronic domestic bank payments system to operate efficiently alongside sterling and EU systems.
Considerable work and liaison with external parties (eg the IMF, Bank for International Settlements, European Central Bank and Bank of England) will be needed to establish this and related arrangements.
Preparations will also need to be made in parallel for a UK sterling payments system should sterling be retained for even a short period prior to the introduction of the Scottish Pound. The relationship between the SCB and BoE during this period would need to be clarified.
- An expanded Scottish Government Treasury or Finance Department, including a Debt Management Office and staff to cover the new functions of an independent state.
- A Scottish Financial Authority, a wholly owned subsidiary of the SCB which, with the SCB, will regulate Scottish retail banks and be responsible for regulation of other parts of our financial sector.
Contrary to the ill-judged deregulation thrust of the UK Government’s Financial Services and Markets Bill currently before Parliament, these regulations should seek to ensure no recurrence of the behaviour and errors which led to the financial crash of 2008.
- There will also, in due course, be a need for an expanded Scottish Fiscal Commission, responsible to the Scottish Parliament, to produce independent forecasts of the Scottish economy and assist in scrutiny of fiscal and monetary policy; a Scottish National Audit Office to monitor and report on the effectiveness of government spending; and a Scottish Stock Exchange.
Together, the SCB and other institutions will create a substantial number of new, and in many cases highly skilled, jobs in Scotland.
In future articles, we will outline how the new currency will affect ordinary households and businesses, for example their bank accounts, savings, mortgages and pensions.
Everyone can be re-assured that establishing the Scottish pound will be straightforward, with any changes to present arrangements requested by Scottish residents and enterprises being carried out for them by their banks.
