Independence: own currency will protect Scots against looming run on pound, warns expert

simon-lee.jpg
Consider own Scottish currency to protect against collapse of pound
warns academic expert

Independence: own currency will protect Scots against looming run on pound, warns expert

A leading academic expert has advised Scots to seriously consider having their own currency post-independence and believes that it is only a matter of time before the UK experiences a devastating collapse of confidence in the pound sterling leading to a request to the IMF for emergency financial assistance.

Dr Simon Lee, an expert on political economy at the University of Hull, sounded the alarm for Scots ahead of next year's independence referendum on Saturday's (27 April) BBC Good Morning Scotland programme.

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Citing a generational decline of the British manufacturing and exports sector as the key factors behind sterling's instability, Dr Lee is encouraging Scots to think hard over whether keeping the pound is in their best interest: "I think sooner or later there'll be a run on the pound...In those circumstances the advantages strategically for Scotland of having its own currency backed by its oil and natural gas resources would be very, very significant indeed."

First Minister Alex Salmond expressed his belief to MSPs in Holyrood last week, that Scotland is “bankrolling” the rest of the UK with its energy resources, and that sterling would struggle if it was withdrawn north of the Border after independence.

Dr Lee's views lend considerable support to the First Minister’s analysis: "Since 1984, in every year of [sic] the last twenty-nine years, including 2012, the United Kingdom, not least England, has run a major current account deficit so North Sea oil, North Sea gas has made a significant contribution to correct that."

Pointing to stability and protection against currency speculators, there was further support for the SNP view that there would be advantages on both sides for a common currency zone according to the academic: "For England and the rest of the UK, there would be major advantages of having Scotland remaining as part of a continuing monetary Union and monetary stability pact."

However, Dr Lee appeared incredulous as to why the Nationalists have not been open-minded on the matter of an independent currency given what he argues would be clear advantages and the protection it would confer, saying "but of course that, at the moment is not something that's being contemplated."

Dr Lee pointed to the City of London debt load as the key danger for Scotland of being exposed to sterling which he argues is the most flawed currency in the EU. He said: "if you take the debts on the balance sheets of the banks of London into account, then if the Cyprus-model is a warning to other European economies about having an overly inflated banking sector and how that can destabilise a currency, then on those criteria the most vulnerable currency in the European Union is the pound and I think there's a very real danger that what we're going to see in the next couple of years is that the UK, as we found out in September 1976 will have to go to the International Monetary Fund for assistance,"

The warning comes only weeks after leading Scottish economist, Jim Cuthbert, urged the Scottish government to reconsider its policy - before the referendum - of keeping sterling after independence in order to protect Scotland against the "high likelihood of a potentially catastrophic crisis in the not-too-distant future".

Last year in an interview with Scottish Times, one of the world's leading economists, Prof. Steve Keen, warned that the UK faces a Lehman-type crisis. Since then the UK has lost its triple AAA status and UK government debt has continued to climb towards the £1.5tn mark despite austerity cuts leading to acute social distress across Britain.

Scottish Times continues to urge the Scottish government to consider the possibility of using a parallel currency system which would mean keeping sterling for international transactions but introducing a new Scottish currency for domestic transactions. The system would not be so difficult to implement and worked well when the Euro was being phased into existence.

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commented 2013-05-11 02:11:44 +0100 · Flag
Really disappointed to hear that the SNP want to keep the same currency as England. Are we to pretend that money does not control all?

Without a seperate currency we have no independence, except the words written on a piece of paper! The UK (City of London) is where all the major banks and institutions (MF Global etc) are based particularly because the City of London is the global centre of fraud. No, it’s not some African country as we are generally led to believe in the bought and paid for media.

I can understand Alex Salmond’s reticance to be truly financially independant though, as, looking through history anyone who has stood against the money lenders and created debt free money by government has been removed from the scenario swiftly. (see JFK and greenbacks)

We (Scotland) are not alone in this predicament right now. This is a global problem which more and more peple are waking up to. Ask yourself if it is right that money creation (through debt) is controlled by a select few.

We all spend almost every day of our lives working to earn money to pay an array of bills in the hope that we might be able to live in peace. We are clearly slaves to those who (claim to have the right to) create money!

If we do not change this fundamental aspect of life we change nothing!
commented 2013-05-06 16:20:51 +0100 · Flag
I have long said that while there are advantages of a sterling currency union, especially for a smooth road for business during a transitory period.
The UK debt is overwhelming and in my view and of many financial experts that I read of, do predict a collapse of the Pound within the next few years.
Consider the effect on Scotland, well they could be profound.
Civil unrest can be anticipated as it is in America. A very big meltdown is coming and maybe sooner than is thought by most.
A Scottish currency, with our better financial position and our resources assisting that, would be effected but would weather the storm better.
My idea of the currency is the Scottish dollar = Sc$.
As has Australia, NewZealand , Canada, singapore and more. Notice all ex British colonies! None, would go back to the pound.
So it would be the Scottish Dollar for me – Sc$ !
commented 2013-04-30 15:26:55 +0100 · Flag
Hi Gordon, thanks for this. It is refreshing to have a debate based on the reality that an independent Scotland will undoubtedly be in a better position fiscally than the UK.

As I mentioned before a parallel currency would allow trade with rUK to be completed in sterling while allowing domestic Scottish transactions to be completed in the Scottish dollar/pound/whatever. A peg would not be required for the purposes of continuity (which as I understand is the main fear of the SNP) and so allowing it to float, or move the peg regularly, will facilitate a smooth strategy of controlled divergence. The Scottish currency would inevitably rise in value against sterling allowing us to settle our legacy UK debt more easily as pounds would be cheaper for us to buy. A sterling crash would mean that while it would hit our exports we could pay off our legacy debt more easily and there is the likely outcome that those invested in sterling will move their investment to Scotland – Norway is experiencing a huge wave of property investment from capital fleeing southern Europe and flawed currencies such as the pound.

No, we don’t want our English friends to face meltdown, and this is an important point, however the point is that we don’t have to go down with the sinking ship out of solidarity. And it is sinking and we are going down with it already.

I agree that sterling is dependent on our energy and exports but the rUK economy is far bigger and the debt load will continue to grow meaning that even with our energy and exports the crash, as I see it, is inevitable anyway especially when the taxes from energy, exports and so on go to a Scottish exchequer instead of the UK treasury (guaranteeing the crash you mention) as the BoE is pretty much behind most of the gilt purchases already. The rUK will be forced to print money to pay debts and balance the budget and we’ll have internal price inflation problems similar to what’s happening in Europe between Germany and Greece. As our companies and other assets become increasingly valuable compared to rUK’s the BoE will initiate a round of QE and the City (London is stuffed full of speculators unlike in any other example Scotland might look to for direction) and and the rUK government (no hint of solidarity) will see it in their best interests to buy Scotland and in so doing export huge inflation to us. If we stick to sterling only we will have no defence against this inevitability.
Also, as they continue to heavily debase our currency our balance of payments with the rest of the world will sink as we are, in reality, an import economy. Rising costs from abroad will continue to impoverish our population
Good call on the credit crunch which I believe is only just starting. I think sterling was a good shout in 2006, I’d have changed that view when the crash hit in 2008 and it became increasingly clear that the UK and the City were dead men walking.
Last point, the political advantages to a parallel currency are huge. You get real independence and continuity at the same time. Going in the direction we are now with the obvious example of the euro and the red flags that represents in terms of currency union and the ‘yes’ campaign will get slaughtered, I fear. The parallel currency would also see the SNP taking the Greens, socialists and everyone else with them!
commented 2013-04-29 22:10:38 +0100 · Flag
Guys a parallel Scottish currency pegged to the pound sterling say in the way that the Danish Krone is pegged to the Euro is a nice theory. But it just wont work in practical terms, as the amount of traceable exports from Scotland to rUK is far higher than the other way around – think oil, whisky, energy etc

A trade across borders but within a currency zone, doesn’t affect the balance of payments for the currency. A cross border trade that goes to another currency even if it is pegged at parity does, and Sterling is in trouble and needs Scotland energy and exports to stay with sterling.

If you were to take oil, whisky and food exports out of the sterling zone, the balance of trade deficit could cause sterling to sink like a stone, and so would the English economy. Not only would that be bad for Scotland, but it would be bad for our friends in England and that is reason enough – we will still be from Britain (it is an island) after independence, and England will probably always remain our best friend, and SINGLE LARGEST trading partner for a generation at least. The rUK would also need to purchase between 30-40% of its energy from Scotland (oil and gas included) and if those trades were from sterling into another currency zone, then there would be no benefit from buying from Scotland, and not another EU country (especially after the EU super-grid has been completed).

Keeping the pound (at least to begin with) means rUK has to buy its energy from us, and it is not a soft option, but a hard economic choice that has to be made for the benefit of both the rUK and Scotland. The author of this article is right to say that the UK economy is on the brink of a collapse but if we launch our own currency we guarantee that collapse, and trust me a failed rUK economy would bankrupt hundreds of Scottish business – not the great start to independence that we can have if we manage the process for the benefit of all.

There is nothing to fear and all to gain from independence as long as we think with our heads and not our hearts on big issues like this. For the record I first suggested maintaining the pound to the SNP in 2006, so I am no Johnny come lately to this argument. Also re the they didn’t see it coming comment – in 2006/7 I made repeated calls in meeting with BoE representatives including MPC members to curb learning to avoid a credit crunch.
commented 2013-04-29 21:14:48 +0100 · Flag
Hi Alasdair, I agree with your analysis. It seems to me that there is a fear of a trading barrier with existing customer and partners in England which is true. People are going to be tentative. However staying with a fundamentally flawed currency and dangerous monetary system is not the answer. A parallel currency would protect us against the dangers while facilitating ongoing trading relations and also have the benefit of easing us out of our existing dependencies. The political benefit to the ‘yes’ camp is that the SNP can say you have independence and keep a trading currency simultaneously and so this answers the problem that appears to be hurting the ‘yes’ camp that people are not believing they have a serious alternative vision but merely another form of devolution meaning why bother.. A parallel currency addresses all these issues smoothly.
commented 2013-04-29 15:37:11 +0100 · Flag
Andrew Porter. The option you suggest is a step away from the, in effect, adherence to the current system as proposed by the SNP. That this option is looking rather tired and intellectually moth eaten in the light of the current state of the UK economy is damaging the pro-independence case. The simplistic argument on the street that “if you keep the pound why not keep the Union” seems to be resonating with a substantial number of Scots. That, along with a very woolly conservative perception of what independence means and the real opportunities it potentially affords to a people with the wit to realise them, is deflating the ardour of many supporters. The folksy, cautious, conservative and,too often, reactionary flaw in the national character has been a asset to Unionism. It is a mindset that holds us back. Cultivating or placating it with soft options, even temporary ones, is not the way forward. We need a strikingly new model. Sadly all we seem to have presented to us is the old one tarted up. I earnestly hope I wrong but a Yes next september looks farther away than ever.
commented 2013-04-29 13:34:38 +0100 · Flag
Hi Gordon, thanks for the comment.

I read the article posted and am glad for your contribution to the debate.

As to your comments here:
“The only threat to Scottish prosperity following independence is the possible collapse of the rUK economy that might follow the launch of our own currency.”

I fundamentally disagree with this premise. The UK economy could collapse at any time. There could be a collapse in the bond market and a run on the pound at any moment (with an outside possibility of a hyperinflationary depression) – that’s the point Simon Lee was making. If we have the same currency we would not be protected from any of this.

Another major flaw in your (and the SNP’s) case, in my opinion, is that it is in the interests of the UK to trade with us. While ostensibly true, I see no reason to believe that the post-independence English economy will be run in the interests of its citizens instead of the financiers of the City of London. This is why, as I see it, the barrage of economists being chucked at us in SNP press releases, apparently backing the SNP case is largely irrelevant.

As a parallel, imagine a counsellor advising that for the sake of the kids both divorcing parents should maintain a functional relationship and share time with the kids. Any economist would tell you that for the sake of trade sharing the currency would be good idea. However, if one of the divorcing partners has a deadly contagious disease and has become a psychopath then the proper advice would quite clearly be the opposite. While I do have some reverence for economists, they did miss the 2008 crash and have peddled the myth of recovery which as not materialised. Why would I then trust them to be right on this matter?

Lastly, given that Scotland’s fiscal position will be much stronger than rUK’s, clearly our assets would become eyed jealously and the voracious beast that is London City would use a fresh bout of QE to go on an asset spree in Scotland using leveraged buy-outs to completely gut all economic decision-making in our fledgling state. We’d be like post-independent Ireland with decades of stagnation ahead of us.

I am still waiting for someone to beat the argument of using a parallel currency. Keeping the pound for UK transactions while having our own currency for domestic transactions will facilitate trade, protect us from inflation and asset stripping from London while also easing us out of over heavy reliance on the English market for trade.

Politically, the benefits would be huge. The SNP would be seen to be sophisticated, open to ideas and have an argument that can stand up to scrutiny. I’m afraid the present one is going to fall apart and the PR disaster that that will be will sink the campaign..
commented 2013-04-29 13:11:39 +0100 · Flag
Keeping the pound, keeping the monarchy smacks of keeping hold of nurse for fear of finding something worse. Is that what independence is about? The Yes party really do need to smarten up their act. Personally getting more than a little tired of this pussy footing around
commented 2013-04-29 08:47:37 +0100 · Flag
Yes but the a on the pound will be instant if we launch our own currency.

The only threat to Scottish prosperity following independence is the possible collapse of the rUK economy that might follow the launch of our own currency. Dr Lee is right, the pound is in trouble but the rUK is our biggest trading partner and the best way to help ourselves is to help them by keeping the pound. Lets not forget hundreds of year of friendship as well!

Petulant political shenanigans from Osborn aside, the facts of the matter when viewed from a practical not just academic view, point to the inescapable conclusion, that we should keep the pound in the short to medium term, whilst we lower our reliance on the rest of the UK for trade.

My article on the subject published on the Business for Scotland site explains the reality of the situation in practical terms. http://www.businessforscotland.co.uk/euro-pound-or-scottish-pound/
published this page in News 2013-04-28 13:27:55 +0100