The common sense economic position for business and government both north and south of the border is to maintain trade in a uniform currency to the benefit of all parties.
The markets recently pressured the UK Treasury to confirm that Westminster will ensure its debt repayments. The UK Government has issued the bonds that make up the UK’s debt’s so the UK Government is legally responsible for paying them. By creating confusion over debt the No Campaign hopes to gain an advantage in the referendum campaign. The UK Government’s ambiguity has itself forced the markets to ask for clarification. It is probable now that pressure will grow on the Treasury to confirm its support for a continued currency union.
Well respected economic experts like Professor Andrew Hughes-Hallet have said that UK Chancellor George Osborne’s scepticism towards and unwillingness to discuss a continued currency union is “political posturing” that won’t last a day after the referendum. Aside from political point scoring, there is a great deal of certainty that all parties will agree to a mutually beneficial continuation of the currency union. What matters is the economics of mutual interest.
1. The Governor of the Bank of England has proposed currency talks
Mark Carney, the new Governor of the Bank of England, has offered to discuss setting up a currency union with the Scottish Government. He told reporters that “there has been an effort to set up a meeting” and that he is “sure it will happen at some point.” The meeting is expected to take place very shortly.
2. The Treasury has started planning for the financial implications of an independent Scotland
In response to market pressure, the UK Treasury confirmed it will maintain the liability on all UK debt in the event of Scottish independence. This matches the common sense position outlined in the Scottish Government’s White Paper which states that although the debt officially belongs to the rUK, Scotland will contract to pay a fair share of the debt as long as it receives a fair share of the UK assets (in line with international law).
This was the latest signal that the Treasury has plans for the transition and negotiations that would follow a vote for independence. It is common sense and simply proper planning for the Treasury to start the process now for establishing a currency union following a Yes vote.
3. Financial institutions agree that a currency union is mutually beneficial
Currency traders in some of the world’s largest financial institutions support a currency union between Scotland and the rest of the UK. Oliver Harvey, strategist for Deutsche Bank, described a Scotland-rUK Sterling arrangement as an “optimal currency area”.
Valentin Marinov, the head of European Group-of-10 currency strategy at Citigroup added: “Given the close economic ties between the two and assuming that these ties need not weaken going forward, the potential introduction of a currency union need not affect significantly trade and other flows.”
There is already evidence that international financial organisations value the stability that a currency union brings following independence. This evidence is impossible for the Treasury to ignore, even as its ministers play politics for the next few months to the referendum.
4. Economic experts support a currency union
The independent Fiscal Commission Working Group of globally renowned economists produced a considerable report into the macroeconomics of an independent Scotland conclusively supporting a currency union. Economic advisors both in rUK and internationally agree that a union will provide an optimal area for trade and business.
5. Ed Balls supports mature talks after independence
This week the Shadow Chancellor Ed Balls continued the move towards a mature, reasonable and common sense approach to the continuing currency union despite still campaigning against independence.
In a press interview he proposed meeting with the Scottish Government to discuss currency and stated that he would honour the principles of the Edinburgh Agreement to work together sensibly after the referendum, if he is elected Chancellor for the rest of the UK at the 2015 Westminster General Election.
We call that stating the obvious – or possibly forgetting to bluff!
There is a growing economic consensus amongst truly objective sources in support a currency union between Scotland and the rest of the UK after independence. While there will be further politically motivated statements from Westminster and No Campaign supporters in the months ahead, the economic facts all lead back to establishing a currency deal. This is bad news for supporters of independence who support an independent Scottish currency but Gordon MacIntyre-Kemp the CEO of Business for Scotland has claimed that it is a credible plan B and could even work out better for Scotland in the long run if there was no currency union.
The main question on currency is when will George Osborne and the UK Government recognise this reality?