THE Sustainable Growth Commission’s report on independence has sparked a summer of discussion about what independence could and should mean for Scotland. Ahead of the National Assemblies, Common Weal wishes to take up offers made by First Minister Nicola Sturgeon and SNP depute leader Keith Brown to engage with the Yes movement in shaping the offer that would be made to the nation in the upcoming second independence campaign.
One of the Growth Commission policies that caused Common Weal the most concern was the one that stated that an independent Scotland would not have its own currency but would use the UK pound unofficially for an extended period of time – a process known as Sterlingisation.
To understand our opposition, we must consider why the different currency options available to Scotland matter and who controls what is known as monetary policy for our country.
READ MORE: A thriving independent Scotland will elude us if we make the same mistakes that the UK has
Right now, as part of the UK, the Bank of England makes decisions on interest rates, inflation targets, Quantitative Easing and other policies on the basis of what is best for the UK taken as a whole.
This should, in theory, include Scotland’s needs balanced against the needs of London, Wales, Northern Ireland and other parts of the UK.
In the currency union plan advocated in 2014, this would have continued with the exception that Scotland would have gained a dedicated member on the Bank of England’s board who could speak directly for Scottish priorities.
Under the Sterlingisation plan proposed by the Growth Commission, Scotland would have no control over monetary policy and the Bank of England would have no obligation to consider Scotland’s economy or its needs when making decisions for the remaining UK.
If, however, Scotland had its own currency, it would have its own Central Bank and would make its own monetary policy decisions directly for Scotland.
Now, the Growth Commission does propose an eventual transition to a new currency but only after meeting “six tests” of their devising (folk may remember Gordon Brown’s “five economic tests that were used as an excuse to keep the UK our of the euro). By their projections it would take a minimum of 10 years to meet these tests – and this may be a generous assumption. Had Scotland become independent in 1999 and implemented this plan, the “tests” would have been broken by the 2008 Financial Crisis and we would have been back pretty much to square one.
But even assuming 10 years to meet the tests, it would probably take another year or two to pass legislation and hold a referendum on amending the Scottish constitution. And then it would take three years to actually launch the currency. Add in a three-year transition period between referendum and independence day and if Scotland gets a referendum in 2021, then it would be 2039 before it got its own currency.
Our new paper for Common Weal details how Scotland could set up its own currency by day one of independence and could do so in a way that protects it from financial speculation and other attacks. If Scotland creates its currency during the transition period between a referendum and independence it can do so with the assistance of the Bank of England so that financial speculation is impossible. Even post-independence, Scotland would have the tools that every other normal, independent country has to defend its currency. The truth is that speculating on a currency is risky for the speculator and that most attacks on a currency fail.
READ MORE: Why a prosperous Scotland needs its own currency
Even if someone supports every other policy that the Growth Commission has offered (we don’t – we want to avoid copying the UK’s tax and financial regulation systems into an independent Scotland) then they should still support an independent currency. Everything that the Growth Commission offers can be done with a currency. Sterlingisation, however, locks Scotland into their vision whether we like it or not.
For a democratic, “future neutral” approach to independence, we need to get this one thing right from day one. An independent Scotland needs its own currency.
Dr Craig Dalzell is head of policy and research at Common Weal
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