A DECADE after the independence referendum, parts of the independence movement and a huge chunk of Scots are still unaware of the depths and details of issuing your own currency.
Scotonomics was out in force in Dunfermline, and Kairin and I both attended the Scottish Currency Group Conference. Kairin helped summarise the conference on a panel with Tim Rideout from the Scottish Currency Group and Craig Dalzell from Common Weal. Almost 200 people joined us. All there to listen to technical presentations about a new Scottish currency! Currency has, well, currency.
When Stephanie Kelton released her book, The Deficit Myth, in 2020, it soon appeared on the New York bestsellers list. It is a best-seller about the Federal Reserve's monetary operations! Next week, I will chair a panel that includes the deputy leader of the Green Party for England and Wales, and Josh Ryan-Collins, an associate professor of economics and finance at UCL IIPP. The panel takes place after showing the Finding The Money MMT film, which has sold out!
Much of Scotonomics' output mentions currency and monetary sovereignty, and there is now a huge amount of academic literature, books, films, and events explaining the most fundamental of economic tools: currency. And yet, as an electorate and as a movement, we are still unclear about the essential differences between continuing to use the pound, using the euro, or having our own currency.
The discussion within the movement seem to have moved on to the "nuts and bolts", while the electorate is still weighing up the pound vs the euro.
At the SGC conference, we had semi-technical sessions on ensuring a new currency slots seamlessly into international payments systems and discussions on practicalities like how we build up reserves and what happens to mortgages in the British pound. Now, all of these things are important, and in no way do I want to discourage this level of detail. The Scottish Currency Group has done a great job raising awareness and giving its view on how things should be done. But the conversations helped reinforce my view that we are still "missing the forest for the trees".
With limited resources, the priority should be informing the electorate about what it means to issue your own currency.
For sure, many people are much clearer on the currency question – the one that arguably sunk the 2014 vote – but unfortunately, we are still a million miles away from a general understanding and appreciation of what it means to have your own currency, warts and all.
Eighty per cent of countries issue their currency, but it is not a land of milk and honey. Leaving the pound or not joining the euro will force us to make economic decisions affecting our economy and society. Let’s embrace that. Isn’t that the whole point of independence?
A large slice of the work shifting to a new currency primarily involves monetary operations and payment systems and is purely technical. As an electorate, all we need to know is that this is complicated, but Scotland would likely achieve all of this in no more than three years.
But the bit that is left. Well, that’s where it gets interesting. Let’s say we do go with a Scottish currency:
● Should we peg or float the new currency, and to what timeline?
● We need to have some foreign currency reserves. How do we do that, and when and how much?
● Should the Government insure savings at the pound level for a while?
● Do we have a long-term view of using the euro?
● How do our short/middle/long-term trade patterns align or not with our currency choices?
● How will we and how much can we secure in "swap lines" (access to limited or unlimited amounts of $, £, €, etc), and what support can we have from larger central banks?
● How about setting up an arm's-length state-owned bank to purchase mortgages and loans in GB£?
● Could we have Blackrock consolidate all UK-based Scottish mortgages and have them take on the Foreign Exchange risk?
● How much and who will be given initial reserves?
● What interest rate policy should be set or followed?
● How flexible are any fiscal rules to cover new currency creation?
● Central Bank mandate, independence, design?
● Do we include a central bank digital currency?
● How many Scottish commercial banks do we have, and what are the licence conditions?
● Will we have capital controls, and if so, for how long?
● What is the timeline for enabling the exchange of British pound to Scottish pound?
● What is the role for government-run regional and national investment banks?
● How do we deal with the currency's depreciation/appreciation, and what compromises must we make?
● What is our export strategy?
● How do we suppress internal demand if we choose to boost exports?
The answer to most of the questions above depends on what direction we want to take as a new independent nation. The movement should have this debate, but the message towards the electorate must differ.
Once people understand the difference between issuing and using a currency, they see potential devaluation, reserve levels, and speculation as natural issues built into managing your currency. Currently, London does this exceptionally badly on our behalf. Brussels would be as poor a steward. And don’t get me started on Bitcoin!
Only with our own fiat currency can we make the choices that will shape our future. Let’s make sure we win that argument. Working together I think we can do just that.
