IT appears to me that when a Scottish currency is discussed in public we get nonsense presented by the Unionist media, and unfortunately, sometimes by the SNP leaders, which only serves to make this issue more difficult for most folk to understand and participate in.

Let us be clear about one thing: a proposal for a Scottish domestic currency is not a proposal to completely replace the role of the pound Sterling.

The pound Sterling plays two roles: its major role is to act as an international exchange currency and its minor role is to act as a domestic currency in the UK.

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There is no suggestion by any sane person that Scotland should produce an international exchange currency. That would be ridiculous. The proposal for Scotland is to product its own domestic currency regulated by its own Central Bank.

So when people ask “can an independent Scotland use Sterling?” or “when will we stop using Sterling?” the question needs to be clearly defined. When Scotland sets up its own Central Bank and is ready to use its own Scottish pound, it will stop using the pound Sterling in the domestic economy, but will continue to use Sterling in the foreign exchange market along with the euro and the dollar.

Scotland will not need any “tests” to apply to its domestic currency; it will not be using that currency for international exchange. Unlike England, Scotland will have a separate and distinct currency for the internal Scottish economy and will use Sterling and other international exchange currencies for international trade as most countries do.

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More than 80% of economic activity will be conducted in Scotland using its own currency, and the Scottish Central Bank will handle that, and also manage Scotland’s balance-of-trade accounts with its foreign currency reserves. Now Scotland’s balance of trade right now is very healthy, unlike England’s, and Scotland has no National Debt unlike most countries, particularly England.

So if there is a further reduction in the value of Sterling after Scotland has established its own domestic currency, then such a devaluation will have immediate effect on the English domestic economy, but it will have no effect on the Scottish domestic economy. It will have an effect on the Scottish Central Bank’s foreign reserves, but that effect will be determined by the amount of Sterling the Central Bank is holding, relative to the amount of dollars or euros it is holding. For example, if the Scottish Central Bank is holding the same amount in Sterling as it is in dollars and the pound loses by 10% against the dollar, Scottish foreign reserves will remain the same, because what we lose in Sterling reserves will be gained in dollar holdings.

The problem which is facing the pound is that of the three international reserve currencies Sterling is the weakest, primarily because the UK has the smallest and weakest industrial base and market. This will not change anytime soon, so in the long term Sterling’s value will fall relative to the other two.

The lesson for Scotland is clear. It must set up its own domestic currency and do this without delay. It will need to continue using the pound Sterling until it has its own Central Bank and currency established, and after that the Scottish Central Bank will continue to use Sterling for international exchange as well as the euro and the dollar.

Andy Anderson

CHRISTOPHER Bruce (Letters, Oct 11) answers a different question from the one I had posed earlier. I had not – as he implies – asked how Scotland would use Sterling after independence: that is obvious. I asked instead how Scotland could possibly call itself independent if tied to the currency of another country – it couldn’t!

Peter Swain