Wealthy Nation supports the continuation of the currency union after a Yes vote.Â We also believe that it will be maintained.Â But we recognise there are longer-term options open to Scotland as there are to all independent countries, and these will without doubt continue to be debated till September 18 and beyond.Â Below we reproduce two of today’s contributions to the debate, the first from Sir James Mirrlees, economic adviser to the First Minister of Scotland and Nobel prize laureate in economics 1996, the second from Sam Bowman, research director of the Adam Smith Institute.
This is an excerpt from an article by Sir James Mirrlees in the Scotsman, February 13, 2014:
The need for partners in a monetary union to share some sovereignty in common institutions is no disadvantage if monetary policy is then well conceived. Even if Scotland were instead to follow Hong Kongâ€™s example and have a Scottish pound which a Scottish currency board keeps at parity with sterling, the interest rate would essentially be imposed on Scotland by world markets. Hong Kong exercises considerable autonomy in its fiscal and macro-economic policies. Scotland could expect to be able to enjoy comparable or greater autonomy.
THERE also must be credible fiscal projections for net debt and borrowing to meet market requirements and agreement on an overall fiscal base for a Sterling area. This would still allow for flexibilities in the design of the underlying tax system and a range of specific policies tailored for each country. This would provide the autonomy and policy levers to target country specific differences.
Commenting on the Chancellor George Osborneâ€™s announcement today that is likely to rule out an English currency union with an independent Scotland, the Adam Smith Instituteâ€™s Research Director Sam Bowman said:
An independent Scotland would not need Englandâ€™s permission to continue using the pound sterling, and in fact would be better off using the pound without such permission.
As the American economist George Selgin has pointed out, what the Prime Minister really means is that the Bank of England would not act as a guarantor for Scottish banks or the Scottish government. Lucky Scotland: the implied promise of a bailout from the European Central Bank is exactly what allowed Eurozone banks and governments to borrow cheaply and get themselves into a debt crisis.
Scotlandâ€™s position would be closer to that of countries like Panama, Ecuador and El Salvador, which use the US Dollar without American â€śpermissionâ€ť, and according to research by the Federal Reserve of Atlanta, consequentially have far more prudent and stable financial systems than if they were part of a formal currency union.
An independent Scotland that used the pound as its base currency without the English governmentâ€™s permission, with banks continuing to issue notes privately and private citizens free to choose any currency they wanted, would probably have a more stable financial system and economy than England itself.
Itâ€™s up to Scots to decide whether they want independence, but the Chancellorâ€™s announcement today should be seen as a feature, not a bug.