Friday, 14 February 2014

Scotland and its currency in the event of independence

Update 17th February:  The Telegraph reported on a defiant speech by Alex Salmond.  The speech delivered in Aberdeen claimed that the British government would back down with regard to its stance of no currency union in the event of independence.

The European Commission President stated that obtaining EU membership might be difficult for an independent Scotland - BBC News Scotland 16th February 

Original Post:

The "Edinburgh Agreement" 2012 paved the way for the forthcoming independence referendum in Scotland - BBC 15th October 2012  and see also the text of the agreement.  The final words of the agreement are perhaps worthy of particular note:

"The two governments are committed to continue to work together constructively in the light of the outcome, whatever it is, in the best interests of the people of Scotland and of the rest of the United Kingdom."

The referendum, will be decided by the electorate in Scotland.  The peoples of the remainder of the existing UK do not have a say even though an independence vote will have serious effects on England, Wales and Northern Ireland.  (Of course, Wales and Northern Ireland already have forms of devolved government).  With just 7 months to go to the referendum, many key questions have been asked but the answers remain unclear including whether an independent Scotland will be able to remain in the EU and, perhaps the most fundamental issue of all, the currency to be used in Scotland in the event of independence.

Political parties in England have stated that a currency union with Scotland is ruled out - The Guardian 13th February.     The Chancellor of the Exchequer (Rt Hon George Osborne MP) made a statement (13th February) to this effect and his statement was backed up by the release of advice he had received from the Treasury civil service.

A clear video explaining the possible financial options for Scotland in the event of independence has been produced by the National Institute of  Economic and Social Research.  Writing on the UK Constitutional Law blog,  Allan Trench (Professor of Politics at the University of Ulster) asks whether taking a sterling currency union off the table is a game changer.   

It is probably a major understatement to say that the Chancellor's statement has not been well received in Edinburgh.  Alex Salmond (Scotland's First Minister) is reported to have said that without currency union, Scotland would not take its share of the national debt accrued up to independence day.  The wisdom of any such course is questionable given the possible adverse reaction of international money markets.  Scottish Constitutional Futures sees Mr Osborne's announcement as "pre-negotiation" - see this post - where it is noted:

"The UK government up until now has clearly stated that it is not going to ‘pre-negotiate’ the break up of the Union.  Yet today the UK Chancellor George Osborne, along with support from the Labour and Liberal Democratic parties, has ruled out in advance a currency union.  In response the Scottish government has raised that they have a card to play: a possible refusal to take on a share of the UK’s national debt." 

The Scottish Government's paper Scotland's Future was published in November 2013. This document noted: "The pound is Scotland's currency just as much as it is the rest of the UK's.  The expert Fiscal Commission Working Group concluded that retaining Sterling as part of a formal Sterling Area with the UK would be the best option for an independent Scotland and the rest of the UK."

London and Edinburgh therefore seem to be poles apart on this absolutely vital and major issue.  The Scottish voter ought to be able to vote in a fully informed way and not against such an unclear  background.  The remainder of the UK is also entitled to know just what the Scottish referendum might entail for their economic future.

The way ahead is unclear.  Possible options for Scotland - see BBC 12th February - include introduction of its own currency.  The options are all beset with difficulties and the Scottish National Party now finds itself under pressure to set out what its Plan B is to be - The Scotsman 14th February 2014

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