Currency Economics of Independence Scotland's Economy

UK Government plans to share Sterling currency with Indy Scotland

Scotland's strong fiscal positionIn order to encourage Scottish people away from voting for independence, the UK Treasury has led an all out untruthful and overwhelmingly negative campaign aimed at undermining the economic confidence of Scotland. Unable to provide a positive economic vision for Scotland remaining in the Westminster system, they have resorted to attacking Scotland’s economic foundations.

The key scare-stories from the No campaign have been that:

1) Scotland’s economy is weaker than it actually is, this has been comprehensively disproved by Business for Scotland.

2) That there is “uncertainty” about the continued use of the pound, but as Business for Scotland pointed out it is in the rest of the UK’s interest as well as Scotland’s to maintain the currency union.

3) That there is “uncertainty” over EU membership when actually it is the UK Government that’s creating uncertainty, for instance by not seeking clarity on the process for Scotland’s EU membership.

4) And of course the old favourite, still going since the mid 70’s, that the oil is about to run out, when in fact as we have proven, there are new potential untapped reserves.  The UK government prefers to have nuclear submarines based on the West Coast of Scotland rather than the prosperity an oil discovery would bring. There is also sufficient economic life left in Scotland’s North Sea reserves to underpin a strategy for renewing Scotland’s economy by investing in our areas of economic strength, as opposed to the slow managed decline strategy that Westminster is following.

London realises that Sterling needs Scotland’s exports, (whisky, food, oil and gas etc), to underpin its balance of payments, and global markets will expect an independent Scotland to be part of a currency union as retaining sterling would make sense because of Scotland’s ties to the British economy, according to Deutsche Bank AG and Citigroup Inc. 

Victims of their own scaremongering

Having made the ridiculous claims that the rUK might not want to share the pound with an independent Scotland as part of their project fear strategy, the UK Government has now found itself having to assure international money markets that there is no risk to the UK’s debt repayments and that by default they will be looking to do a deal with Scotland on the sharing of assets and debt – ipso facto Scotland and the rUK will share the pound Sterling following a Yes vote.

Placed front and centre in today’s Financial Times the UK treasury has said it “will assume full responsibility for Britain’s £1.2tn debt stock in the event of Scottish independence”. However, the Treasury expects Scotland’s newly independent Government to pay its share of the debt and to reimburse the rest of the UK directly, subject to negotiation.

This suggested arrangement is exactly what is being proposed by the Scottish Government. That Scotland will take on the responsibility of paying back a fair share of the UK’s debt direct to the UK Government who of course legally hold the rights to the Government bonds to be repaid. Crucially though, as under international law and precedent, the Scottish Government has made it clear that Scotland will not take on a fair share of the debt unless it also receives a fair share of the UK’s assets.

Mark_Carney_profile_427419aSharing the currency is part of that deal and by this announcement the UK Government has accepted that position. An independent Scottish currency could be made to work for Scotland, indeed that would have many benefits however it could not be made to work so well for our friends and partners in the rest of the UK and would as explained above require compensation to Scotland were we denied in any way access to the ass et that is Sterling.  The politicians, and in particular George Osborne MP, will continue to bluff right up to referendum day on this issue, in an attempt to scare Scottish voters away from the real opportunity Scottish independence presents. Of course, the writing has been on the wall for negotiations since Mark Carney, the Canadian Governor of the Bank of England, requested talks with the First Minister on the Scottish Government’s plan to continue to use the pound in a formal sterling currency union 

Independent Scotland would have exceptional credit rating

This announcement not only undermines the No Campaign’s unfounded scaremongering on a shared currency it also fundamentally weakens the rUK’s negotiating position by accepting full responsibility for the UK’s growing debt mountain prior to the negotiations with an independent Scotland. To excuse this the Treasury states that it wants markets to know that Scotland, as a new country without a history of honouring government bonds, would be a worse credit risk, when in fact Scotland could be seen as a better credit risk than the rUK!

Scotland’s fiscal position is already stronger than the UK’s

  • Scotland accounts for 9.9% of the UK’s revenues from 8.4% of the population
  • Scotland’s GDP is £28,500 verses the UK average of £24,350
  • Scotland generates £10,700 per head in taxes versus a UK average of £9,000
  • Scotland’s deficit (despite spending marginally more) is 5% of GDP versus the UK’s at 7.9%

The coup de grace, however, is that far from NOT having a history of honouring government debt, Scotland in fact has a 32 year history of paying more than sixty four thousand million pounds for debt created in the rest of the UK at a time when an independent Scotland would have been generating a massive present day fifty thousand million surplus.

Conclusion

An independent Scotland in national credit worthiness terms would be one of the strongest in the world only lagging being similar leading independent wealthy nations such as Norway.  Meantime, the UK has lost its triple AAA credit rating. Of course, Norway had the benefit of a head start having become independent from Sweden much earlier than Scotland has from the UK.

Sterling is Scotland’s currency now, it will be Scotland currency after a Yes vote and today’s announcement paves the way for the Scottish people to see through the No Campaign’s scaremongering and bluffing on both the maintenance of the existing currency union and the division of debt and assets.

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

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