AS first minister from 2007 to 2014, Alex Salmond led the charge in the Scottish independence referendum. Salmond’s thinking on Scotland’s economic future, particularly his stance on the currency and fiscal policy, has had a lasting impact.

The passing of Alex Salmond has shocked us all. I was lucky to spend an hour discussing Alex’s personal economic journey back in 2023. Here are my reflections on that conversation with all the quotes from our discussion.

For Salmond, economics was not merely a technical subject but a vehicle for Scotland’s political aspirations and independence. He decided to study economics because he “was looking for rationales to justify the economics of Scottish nationalism”. No one would doubt that his passion for Scottish independence began so early in his life.

Salmond explained the rationale behind the decision to retain the British pound, “sterlingisation”, during the referendum. He pointed out that in 2012, the decision was largely shaped by advice from a prestigious council of economic advisers, including Nobel laureates such as Joseph Stiglitz and Sir James Mirrlees.

“In economic terms in 2012,” Salmond said, “you would argue if you're looking for an optimal currency area, Scotland and England would fit that currency area".

(Image: Paul Campbell) He went on: "Particularly when that currency area was existing in a wider single market, and you also had another currency but in large, the euro. So in economic terms, you could build a very substantial argument that was the optimum decision.”

Salmond knew this decision would be controversial, but he saw it as a necessary compromise to win over undecided voters.

“I judged that the only way to win that campaign was by triangulating as many issues as I possibly could,” he explained. “If I tried to fight on monarchy, on defence, on social union, and on currency, we wouldn’t have won.”

By retaining the pound, Salmond aimed to offer economic stability while focusing the campaign on the broader political goal of independence. Had he chosen another route and went against the council's advice, would we have won? We will never know.

READ MORE: Conference on Scotland's currency post-independence generates optimism

At the time, critics of sterlingisation argued that it left Scotland vulnerable to decisions made by the Bank of England. As Salmond reflected on this in later years, he acknowledged the difficulty of the position, noting that while it made sense in 2012, the political reality was different: "You can say a lot of things in a campaign, but you have to make sure that your campaign rhetoric has some semblance of reality."

Salmond’s views on currency evolved, particularly after the UK exited the European Union. In response to my question about how his views had changed since 2014, Salmond was clear: “In 2023, we’re in a totally different position … Scotland and England obviously are no longer going to be partners within the European Union. Brexit has happened. There’s many people in the national movement who don’t seem to understand that.”

He argued that Scotland’s new reality meant it could no longer credibly rely on sterling. Instead, Salmond advocated for an independent Scottish currency, giving the country full control over its fiscal and monetary policies.

During our interview, Salmond pointed to the success of small countries within the European Free Trade Association (Efta), such as Norway, Switzerland, and Iceland, all of which maintain their own currencies. “Every one of the Efta countries has its own currency,” he noted.

For Salmond, having a separate currency was essential for achieving true independence and responding effectively to financial crises. But you could argue, it was easy to say this when you didn’t have to deal with the politics like he did in 2012.

“If you launch a currency, you have to have the persuasive power that you’re able to back that currency,” he said, adding that an independent Scotland would be well-positioned to thrive in the global economy with its own monetary policy.

Critique of the Bank of England and Andrew Bailey

Salmond’s evolving views on currency were likely shaped by his increasing criticism of the Bank of England’s monetary policies.

In response to my question on the role of the Bank of England under its current governor, Andrew Bailey, Salmond did not hold back: “Andrew Bailey [below] … sanctioned progressive rates of interest. It’s now 4.25%. Almost at the level that we are prevailing as we went into the economic financial crash about 4-5% back in 2008.”

He argued that these rate hikes were recreating the conditions that led to the 2008 financial crisis, making it more likely that households would fall into negative equity and businesses would go under.

Alex was friends with Danny Blanchflower, a former MPC member at the Bank of England, and he cited him as a contemporary economic influence. On hearing of Salmond's passing, Professor Blanchflower said: “I am so shocked. I have talked with Alex many times and he interviewed me multiple times. I also talked to him about economics when he was a first minister. We also got on very well, and I found him to be smart and on top of so many issues. He went through so much. He will be a huge loss.”

Salmond's critique of the Bank of England chimed with Professor Blanchflower. Alex’s views highlighted why he believed an independent Scotland needed its own central bank. “The essential conditions are being recreated,” he warned, emphasising that Scotland’s economic stability should not be tied to the decisions of a non-elected body like the Bank of England. For Salmond, this was further proof that the only way forward was for Scotland to control its own economic destiny.

An orthodox, pragmatic economic approach

Salmond’s broader economic philosophy remained rooted in orthodoxy, particularly regarding money creation, taxation, borrowing and deficits.

He believed that governments, unlike households, should not aim to balance their budgets in the short term. “There’s a strong argument that governments should aspire to balance taxation with return spending over the medium term,” he said, but he also stressed the importance of borrowing for capital projects that yield long-term economic benefits. This Keynesian approach, focused on borrowing to invest in infrastructure and growth, was a central pillar of his economic thinking.

READ MORE: Inside the Scottish Currency Group conference in Dunfermline

Modern monetary theory (MMT) and the ‘Magic Money Tree’

In response to my question about modern monetary theory (MMT), Salmond’s view remained pragmatic but open to discussion. He acknowledged that a fiat currency, like the pound or an independent Scottish currency, offers governments a great deal of flexibility in managing their economy.

“If you have a fiat currency, you can effectively create as much demand in finance as you want,” he remarked. But Salmond also warned that MMT is not a panacea, noting that “it sounds too good to be true ... because you have to keep control of the supply side of the economy.”

For Salmond, the “magic money tree” only worked if it was rooted in careful economic management, something he saw lacking in the Bank of England’s recent policies.

I would have loved to talk with Alex about this topic at length.

Lessons for the current Scottish Government

Alex Salmond’s economic views offer important lessons for today’s Scottish Government, particularly as the country debates its future post-Brexit. His advocacy for an independent Scottish currency, born from his experience in the 2014 referendum and reshaped by Brexit, provides a clear blueprint for future independence campaigns. Salmond’s shift toward supporting a Scottish currency highlights the need for full fiscal and monetary sovereignty if Scotland is to achieve true independence.

Salmond shares many similarities with the current administration. His focus on leveraging Scotland’s natural resources, particularly its vast renewable energy potential, was crucial. He saw offshore wind as a major comparative advantage for Scotland, capable of powering its economy and pushing for a sustainable, green future. The seams of Alex’s economic views still run deep in the current administration.

Alex Salmond’s economic legacy is pragmatism, foresight, and adaptability. From his decision to retain the pound in 2014 to his later advocacy for an independent Scottish currency, Salmond consistently focused on what he believed was best for Scotland’s economic future.

As Scotland continues to navigate the challenges of Brexit and the ongoing push for independence, Salmond’s insights offer some checks and balances for the path ahead. His belief in fiscal responsibility, monetary independence, and the strategic use of Scotland’s resources remain relevant today.

You can see the full interview with Alex Salmond on our YouTube channel on Wednesday with a live show from 8.05pm to 9.30pm.