Westminster Mismanagement

George Osborne is responsible for pound devaluation

Currency marketsOn Sunday morning on the Andrew Marr show Chancellor George Osborne was pressed by Marr on currency arrangements in the event of a Yes vote.

Osborne was very, very clear in repeating his claims on the currency. Marr pressed the point again-  ‘No ‘ifs’ no ‘buts?’

Osborne, “No ifs no buts – we will not share the pound.”

Osborne is perfectly aware the markets started selling sterling last week following a You Gov poll showing the polls continuing to close. With Sunday’s poll in the Sunday Times indicating the Yes campaign had moved ahead the reaction of the markets within hours was predictable, even George Osborne could work that out.

Osborne’s act of economic vandalism

It was always a dangerous strategy for Osborne to move from a position of arguing against a currency union to flat out refusal to leave it on the table. He has left himself no wiggle room.

Sterling has now dropped against all major currencies including the Euro and analysts are predicting the value of sterling could drop by up to 10%. Such predictions can become self-fulfilling as investors holding sterling and UK debt rush to reduce their holdings. This is a direct consequence of Osborne’s refusal to discuss a currency union – which the markets and companies have requested.

When the market sees nothing to reassure, investors and countries holding sterling reserves react and the slide is in danger of getting out of control.

So Osborne knew on Sunday that he was effectively devaluing the pound. He chose political rhetoric over a chancellor’s duty to stabilise the markets. He did NOT say “Look I think it is a very bad idea, but if Scotland votes for independence of course we will sit down and discuss resolution of all the major issues.”

We know that the currency of an independent Scotland will be the pound and the Scottish Government has a range of options, but favours a solution that makes continuing trade between Scotland and rUK free of transaction costs.

Currency union ensures the value of the £ and financial stability

Such a solution is more beneficial to rUK than to Scotland because Scotland imports more from rUK than it exports. It is the one plus on rUK’s balance of trade. Scotland on the other hand has a healthy balance of trade surplus.

The drop in value of sterling is actually good for the Scottish economy. Because of that healthy trade surplus our exports become more competitive in international markets. Sterling falling against the dollar is good news for oil exports because oil is priced in dollars and we win on the conversion back to pounds.

There is a bit of a problem though for the City of London with the drop in the value of sterling because the city is dependent on a stable and high value pound. London’s investment bankers and foreign exchange traders will not be at the back of the queue in selling sterling.

The other ‘little’ disadvantage to the UK of a sterling sell off is it is pushing up the cost of servicing UK’s even rising debt.

Join Business for Scotland – Sign the business declaration

Visit our Resource Section for more information.

About the author

Russell Bruce

Russell has worked in advertising and publishing. He was a board member of Loch Lomond and the Trossachs National Park from 2002 to 2010. Russell is a partner in Diverse Marketing and Twinlaw Publishing and is currently Chair of Borders Writers' Forum. He has also written for online news sites and is editor of voteyesborders.com.

9 Comments

  • Is what Osborne et al are now doing so close to the vote actually legal? And whether or not the politicians getting ready to make this offer can be trusted to keep their word, there is much more at stake than if or what they will deliver. The law, the spirit and the intent behind the entire referendum process will be overturned and the outcome influenced by the kind of manipulation that was meant to prevented by the SIRA, if the government is allowed to get away with this tactic.

    So, I encourage everyone to sign the petition via the link here:

    http://www.change.org/p/electoral-commission-scotland-keep-the-scottish-independence-referendum-fair-and-legal?recruiter=85137854&utm_campaign=signature_receipt&utm_medium=email&utm_source=share_petition

  • What a poor article. The UK debt is in sterling. Osborne is perfectly happy to devalue the pound as it is too strong and stifles exports. Plus the pound will rise once interest rates starting climbing. Plenty of other countries use the pound but without influence over it as they do not have seats in the Court of the BofE. That is the position scotland will be in.

    Oh and oil is dropping. There goes the budget too! Good luck.

    • ‘The UK debt is in sterling’ Well I never!! Arguably sterling may be a bit high but that suits the City of London. A fall, as I argue, is good for the Scottish economy as we have a healthy current account surplus growing steadily due to the policies of the Scottish Government.
      The point about the debt is the scale and the uncontrollable way it continues to rise. It is presently 3 times what is was when Osborne became chancellor and OBR predict is will rise from 1.2 trillion to 1.6trillion by 2016. Rising interest rates? Less likely than the BoE sometimes have to indicate to cool rising property prices. Look at the history of bank rate changes and you will see we have never had such a sustained period without any changes. Now over 5 years. The real problem is if the BoE raises interest rates then the cost of servicing the debt rises in line with the increase in base rates. Two ECB rate cuts this year is keeping sterling at artificially high levels.

  • Can Mr Osborne please explain how British territories, who govern themselves, can use the British pound, yet it will be so difficult to let the Scottish use the pound. I will tell you why scare mongering. The Better Together campaign has based ALL their arguments on the attitude that the Public Know nothing. There is any easy way to find out an its called Google.

    • They don’t use the British Pound David, they use a variation of it under license – take the Isle of Man as just one example. It’s not rocket science though to understand that Scotland can use whatever currency it wants… at a price. I’m a Yes voter but I really think Eck and crew are not telling us something here. I have a concern about the currency and only one side is giving a definite answer which is a very disappointing, I really wish we could be told how we will use the British pound. The best option for Scotland (I believe) would be to say right now, we’re not using the British pound, we’ll use a Scottish one and match it in value to the GBP so there is never an exchange rate and so cross border trading remains unaffected.

      • The Scottish Government has made it clear that they believe there will be a currency union. Business for Scotland supports this and we believe that any market jitters right now (real or imagined) are due to the unreasonable and unprofessional refusal of the chancellor to admit that the rUK needs Scotland to share the pound after independence.

        You have a definite answer from the YES side you just think that its possible that the rUK will say no to a currency union – the question is how far does year have to pull ahead pull before it becomes an issue that has to be dealt with before the vote?

      • I agree it is linked to the British Pound, however they still work under a UK currency. So who’s not telling the truth here and why can’t Scotland use the pound when even countries as far flung as Zimbabwe use currency linked to the British Pound. Ask Mr Osborne to explain that????

        • “”why can’t Scotland use the pound when even countries as far flung as Zimbabwe use currency linked to the British Pound. Ask Mr Osborne to explain that????””

          You don’t need Osborne to explain that. You can use the pound, there is nothing to stop you using it. What you will not have is currency union.

  • Brown to layout the timetable for additional powers.
    Why Brown. I thought Alistair Darling was the leader of the Better altogether campaign. Or has he been bullied by his ex boss. Brown is not liked in Scotland, financial crash, illegal wars, selling off the gold, hardly in parliament since exiting as PM. The ego has landed.

Leave a Comment