WE SHOULD NEVER BE DEFENSIVE ON CURRENCY.

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WE SHOULD NEVER BE DEFENSIVE ON CURRENCY.

I have been getting requests all the time to write an article on currency. I do not claim to be an expert on the subject but I have experienced the introduction of a new currency in a country where I was running a business. That makes me unlike most Scots who have always lived with the UK POUND. That experience brings me to my first point, changing currency is not the traumatic experience that the forces of Unionism would have you believe.

You require a central bank, any country can set one up. Your country does not even need to be Independent to do so. Estonia actually set up their Central Bank the year BEFORE they became Independent. They were moving from an economy based on the Russian rouble to a new Estonian currency, the kroon. They pegged their new currency at a fixed rate of 8 kroons to 1 German mark. They introduced their new currency TEN MONTHS after Independence.

The “experts” had a field day, how ridiculous, a tiny economy of 1.35 million tying their currency to the largest, most productive economy in Europe. It can’t possibly work they said , except it did, and the rate was never adjusted or changed until Germany scrapped the mark and joined the Euro. (Germany surrenders, Estonians joked at the time) At that point Estonia pegged its currency to the Euro at a fixed rate and thus it remained until Estonia joined the Euro in 2011 when Estonians experienced their second new currency being introduced in less than twenty years.

So what happened, how was it achieved? A date was set and on that date all deposits in bank accounts were moved from the kroon to the EURO. For a period of two weeks all transactions  in all shops and businesses could be carried out in dual currencies. At the end of that period the Euro became the sole currency in use in Estonia. If after this date you suddenly discovered a whole stash of Kroons you could take it to the bank and you would be paid out the equivilant value in Euros. This all took place in 2011, if your granny died the next week, next year or the next decade and you found kroons under the mattress you could still cash them in. There is no time limit on how long this can be done. That ladies and gentleman was the total “disruption” involved for the average citizen in the country. Not very scary is it?

Now of course there is much more to it for the Government of the country but it is not the huge problem that Better Together made it back in 2014.

The big mistake, and a mistake it was, was stating that we would continue to use the pound. It was said with the best of intentions, not wanting to make older folk think it was going to be a huge change, but what it did in truth was give Westminster the opportunity to create difficulties and they grabbed it with both hands and here is the first lesson we should learn from the experience. The average voter does not understand the technicalities of currency, so the more you can keep your proposals simple and easily understood the better. The minute you get dragged into the intricacies of the argument you have lost. It is much easier to scare on a subject where there is general ignorance than it is to reassure. The irony of course was that the Better Together position was all bluff. If Scotland had voted Yes, the Bank of England would have been begging the Scots Government to stick with the pound. This was widely accepted across the financial community as anything else would have been a huge problem for the UK pound in the currency markets.

So our policy on currency should be, we will have our own currency (Scots pound or whatever) just the same way as dozens of other countries, much poorer and smaller than Scotland have done. Initially for reasons of stability it will be pegged against (your choice) My preference would be to tie the Scots pound to a basket of three currencies, the UK POUND for historic trading reasons, the EURO, given our extensive trading and export performance with Europe and the US DOLLAR because of our considerable oil wealth. This would provide a platform to argue our savings, pensions etc would be safer tied to three major currencies rather than being tied solely to the UK POUND which as we all know is mired in huge debt. Our tactic here is to force Unionists to explain how a rich country like Scotland with huge natural resources can uniquely be unable set up our own successful currency when so many others, poorer and smaller than Scotland already have.

The most common problem associated with creating a new currency is being able to earn sufficient foreign currency to build up a foreign currency reserve. Scotland fortunately is in a very enviable position when it comes to this as oil is priced in dollars and our excellent export performance and balance of trade surplus makes this much less of a problem that it would be for most other countries in the World.

Instead of getting tied up in technicalities our spokespeople should respond with answers like “it will be a decision for the first Scottish Government” if they persist you go on the attack “have you any idea how insulting that question is.? Why do you constantly talk Scotland down? How dare you suggest that a highly successful, well educated country like Scotland can’t do what, insert a huge list of countries have already successfully achieved”. Watch Unionists squirm as they struggle, as they respond you just fire in a few more examples with every sentence. They have no answer.

We need to train our spokespeople to argue off the front foot next time round. It works by the way, I did it on a BBC radio programme right at the start of the 2014 Referendum and severely verbally beat up a Tory from Better Together. I was never invited back by the BBC for the entirety of the referendum. They can’t do that with everyone, our people need to know our currency script inside out. When the BBC don’t invite you back you know you have landed a mighty blow. A true badge of honour. I of course was arguing for our own currency, it would not have been possible to deliver to the same effect arguing to stay with the UK pound.

So we should be confident about currency, keep “experts” from our side locked up in a bunker somewhere, stick to the offensive message and force them to defend their position. If we do, we win!

For a bit of fun I compared the exchange rates of the Great Mighty Pound in September 2014 with the pound today. In 2014 the pound was worth 1.63 dollars. Today as I write this the exchange rate is 1.32 an almost 20% drop in value. So sticking with the pound as advocated by Better Together has been another decision that cost Scots money as well. We can do better. Much better.

22 thoughts on “WE SHOULD NEVER BE DEFENSIVE ON CURRENCY.

  1. “This was widely accepted across the financial community“

    Can you provide any evidence for this. I work in the financial community and I’ve seen zero evidence of this. Indeed I’ve seen the reverse, and this was backed up by Bank of England minutes at the time.

    So rather than an empty assertion can you provide a link to actual evidence.

    Just so you are aware, the SNP case at the time (that losing North Sea oil would collapse Sterling) was disproved by Sterling rising as the oil price collapsed.

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    1. I seem to recall Governor of the Bank of England Mervyn King and to an extent Mark Carney saying that in terms. What is your job in the financial community? Gaslighter?

      Liked by 4 people

      1. I’m just asking for your evidence. You said it was widely held at the time so you must have something for it.

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    2. No it wasnt, it was widely ‘ asserted ‘ across the financial community on behalf of the union government. The same assertions were made about pensions, the NHS, defence and all the civic and national apparatus of an independent country.
      The reality is that the assets of Scotland’s financial industry are ‘ north of a trillion ‘ sterling ( Governor of the BOE words not mine). The UK gov revenue on oil increases the lower it is, the drop in the oil price screws the balance of payments, not the revenue.

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  2. A very clear argument, Iain, and a good example from your experience in Estonia.
    On the issue of a foreign currency reserve, I recall from an excellent presentation by Tim Ridout that, if the Scottish Central Bank were to offer to buy our pounds Sterling in exchange for Scottish pounds at par, they would accumulate a working reserve of Sterling by so doing. We would have a free choice on whether to do so or not.
    This could be easily done through the banking system for currency held in accounts and, once new notes and coins had been issued, exchanged over the counter. The two systems could run in parallel for as long as necessary with both coins and notes acceptable everywhere and accounts held in the preferred currency of the holder.
    Once the system had been running for a while, the question of whether or not the exchange rate might change could be addressed if thought necessary and the possibility of joining the Euro or not could be discussed and voted on.

    My apologies to Dr Ridout if I have made mistakes in putting forward his currency solution.

    Liked by 3 people

  3. One thing we mustn’t do is be in any kind of economic “union” with England as you can be sure they’d do whatever they can to try and wreck the fledgling Scottish economy in a bid to force reunification.

    Hopefully there’ll be no repeat of that embarrassment last time:

    “There will be a currency union.”

    “No there won’t…”

    Liked by 3 people

  4. How would you peg the new Scottish pound to three seperate floating currencies simultaneously? Seems an impossibility .

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  5. The fixation with currency is something I have never understood. If you listen to the moaning minnies (most of whom know nothing of business and economics) you would think that on “Independence Day” Scotland would, all of a sudden, have no money, no means of exchange and would plummet into some form of dystopia. Unfortunately, many independistas find themselves drawn into an argument where unionists claim that they will take “their money” away from Scotland as if it was a cutlery set being taken away by one person in a divorce.

    As we know, there is nothing to stop Scotland using Sterling. My personal opinion is that, although a Scottish Pound is attractive politically, the Euro is preferable.( At this point I will just drop in that had the UK been in the Euro I would have not had to close my small chocolate-making business, which saw its Belgium sourced raw material costs rocket due to the fall in the value of Sterling against the Euro, to the extent that it was no longer profitable.)

    If we do decide to use a Scottish Pound I would hope that it is pegged to the Euro to reduce risk from the scourge of the currency market – speculation. In an ideal world, speculation, ie gambling, on the markets for currency, capital, commodities, etc would be prohibited. That ain’t gonna happen, but much stricter regulation would be a good start.

    Liked by 4 people

  6. For me, the most important part of your essay is the last paragraph, highlighting the 20% fall in value of Sterling since 2014. In 2015 I was in Cyprus and the rate against Euro was almost 1.40, now it’s 1.11 so again 20% reduction. So much for Tories being party for the economy

    Liked by 4 people

  7. I was still working in the Bank 1969/70, when we changed from £sd to decimal currency. There was the same scaremongering from the same sources, but in the event it all happened perfectly, with no hiccoughs at all. People, even the elderly, rapidly adapted and children were spared learning 12 pence in the shilling, 20 shillings in the £, etc. And all the conversions were done manually by bank staff, as computers were still in their infancy. Also remember the big fuss when all computers were going to crash at New Year 2000. – nothing untoward happened, except that people unnecessarily dumped their ‘old’ computers and bought new Millennium friendly ones – Computer sales soared and some made a lot of money out of the panic.

    Liked by 1 person

    1. Re Y2K, a few things did fail.

      In general the reason that nothing much seemed to happen at the time is that a lot of us in the industry (computers and IT systems in general) spent the preceding 2-3 years fixing things so that they wouldn’t fail. I was personally involved in some of this, related to credit and debit card transactions from retailers.

      So it looked like a damp squib because a lot of us addressed the problems, and worked to fix them.

      Liked by 1 person

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