A guest post from Neil Tye. Biographical details at article end.
Political Betrayal or Patriotic Cause?
The consequences of choosing a ‘Scottish Currency’ is the most important political and economic decision this decade. YES, it’s very important.
The Three Objectives:
This document’s primary objective is to determine which side of the fence the current SNP Scottish Government and the SNP Party prefer to stand. Are they standing on Scotland’s side or are they on the Union side? In order to deduce the answer there is a simple test by observation and written statements that will define and signal their actual position as either betrayers or patriots of the Scottish People. The observation relates solely in their policy decision and selection for our future Scottish currency. What is important is the process of introduction for that currency and the caveats that are attached as conditions. There is only one currency that can be chosen from a choice of two, either the UK£ Sterling or our own new currency, currently known as the Scot£.
The secondary objective is to provide and stimulate a greater understanding of what Scottish Independence and our choice of currency really means based on the reality of Government Economics supported by new macroeconomic research and knowledge. The Scottish Independence public debate is becoming more polarized because of mainstream media reporting that criticises and feeds public discourse away from the reality of national governance by using the same platitudes of unsubstantiated rhetoric, emotional appeals and simple slogans.
What is needed is a composite and simplified analysis of the positive benefits for ‘Scottish Independence’ against the positive benefits (if any) of remaining within the ‘Union’ under the continuing control of a Westminster government.
The tertiary objective of this document is to be able to dissect the potential currency policy choices and create an informed backdrop upon which to build a constructive public debate focussing on the reality of those future policy decisions ensuring that they will categorically lead to social and economic wellbeing for Scotland.
The Provision of Knowledge to understand Full Independence:
The Scottish Independence ‘YES’ movements and particularly the Scottish electorate must understand that ‘Independence’ is not just about obtaining our political freedom and terminating the UK ‘Treaty of Union’. Independence also encompasses the very necessary issue of ‘Financial Independence’ and its provisions for beneficial economic outcomes for Scotland.
The definition of ‘Independence’ encompasses the synonyms ‘Autonomy’, ‘Freedom’, ‘Individualism’, ‘Self-reliance’ and ‘Self-sufficiency’. Therefore, make no mistake Independence includes our ability to manage our own financial powers without any exogenous interference or restrictions, whatsoever.
Without macroeconomic financial autonomy the fiscal and monetary policies for a future Independent Scottish government would continue to become merely an extension of our current financial, social and economic malaise, due to a lack of ‘Fiscal & Monetary Policy Space’.
If you are a supporter of Scottish Independence and understand these fundamental macroeconomic principles then please read on, because there are other important features concerning modern progressive economics that need to be considered and digested. Conversely, if you are confused while listening to the dithering statements emanating from Holyrood and the SNP Westminster group don’t worry, you are not alone.
Confusion of macroeconomics (economics at government level) within the public domain is caused by two principal denominators, media bias and political ignorance. Within these two denominators there are sub-divisions that relate specifically to political and economic ideologies.
Returning to the subject of ‘knowledge’; the state of confusion that currently exists within society can only be defused by a greater proportion of knowledge. Confusion is then metamorphosed into a state of enlightenment and then paradoxically opens the door of truth and reality. What you thought was true, was in fact something else, an untruth.
Then the consequence of knowing makes one want to question the whole purpose of politics and indeed, is there a need for politicians, at all! Their collective inability to solve the simplest of economic requirements makes you want to scream. One cannot help pondering, long into the night, how can this be resolved?
Ironically, we do need politicians, but I have also come to the simple conclusion that politicians are really not the type of people you need when national economic solutions are urgently required. If they were working in any other profession; engineering, medicine, aviation or education; they would be subjected to an inquest of professional accountability and fallacious behaviour, then struck off the register, forever. However, for some unknown reason this doesn’t happen in Politics. Change is needed. There obviously needs to be a tighter rein on ‘Politicians’ by the ‘People’, but that is another social problem that needs to be addressed and deserving of its own platform.
The Road to Scottish Independence is a question of Betrayal or Patriotism:
The above statement is not to be taken in jest. It is a serious retort because the Scottish people have a heritage and a primary ethos which is, their culture needs to be protected. Not by others, but by their own kin. Here listed below are the conditions to measure the Betrayal or Patriotism:
What is the ‘Betrayal’?
If the SNP Party policy for Scottish Currency is:
- Using the UK£ Sterling after ‘Independence Day’ for a specified future period of between five to ten years or until the six economic tests are met which demonstrates that the Scottish economy has sufficiently proven its long-term certainty before committing to a Scot£.
2. Using the UK£ Sterling without HM Treasury approval after ‘Independence Day’
What is the ‘Patriotism’?
- Using the UK£ Sterling up to and before ‘Independence Day’ and then issuing our own new Scot£ currency on ‘Independence Day’ and thereafter.
So, what does all this mean and what are the reasons for the acquisitions. Here are the choices:
The differing cases of financial economic potential with only two currency choices:
- UK£ Sterling: HM Treasury and Bank of England currency
There is nothing stopping an independent Scotland continuing in its use of UK sterling, but the implications are huge. It would place the control of the Scottish economy into the hands of UK HM Treasury and the Bank of England who jointly will have control of Scottish monetary powers including inter-Bank interest rates and the amount of money within the Scottish economy. In other words, Scotland will be selling its wealth-giving monetary and fiscal powers back to the Westminster.
Incidentally, a previous UK government ‘White Paper’ made the biased statement by suggesting that by keeping the UK£ Sterling, ‘would set out a strong position and that retaining it would provide a overarching framework for Scotland post independence and that a shared currency would be in the interests of the UK given the trade and financial links with Scotland’. Unfortunately, such statements do not reflect the reality of the arrangement based on the current evidence that the ‘Union’ has been, in any way, beneficial to the Scottish economy. In fact, the evidence and reality shows us quite the opposite position.
Additionally, using Sterling without permission from the HM Treasury could endanger the stability of the nation’s financial sector because there would be no ‘Lender of Last Resort’. This means losing the services of the Bank of England if the Scottish economy faltered and required a massive borrowing of sterling. Scottish Central Bank will not have the fiscal powers to act as the ‘Lender of Last Resort’ to financially support the Scottish economy because it will not be able to issue currency.
In order to use UK£ sterling Scotland would have to accept HM Treasury limits on its budget deficit (the difference between expenditure and income) and its government debt. That means the amount of borrowing (debt) by issuing debt instruments (Gilts, Bonds or Treasury bills) through the Scottish Central Bank – Debt Management Office (DMO) would be limited.
The Bank of England would certainly not support our economy in the event of any economic crises, like the GFC (Global Financial 2008), or a recessionary down-turn because of international conflict or when the climate change effect needs to be financially tackled and managed. This is a great risk.
Additionally, another risk in using the UK£ Sterling is that the current UK Government handling of the UK economy has created an unstable and irresponsible state of worsening financial inequality and a return to recessionary economics. This policy is unsustainable and along with other national economic policy errors such as the effect of ‘Brexit’.
The evidence of this political mismanagement is openly visible as the current international value of £Sterling to the US Dollar and the €Euro is at its lowest levels since 1985, and still falling (£1 = $1.039) with an impending inflation rate of 15% on its way. All this has and will continue to affect the Scottish economy making the cost of our imports much greater.
If the UK£ Pound is maintained as our Scottish currency for many years then all economic beneficial outcomes will be considerably limited and the economic growth necessary to increase our ‘GDP per capita’ to reach parity with other European nations will evaporate.
The differing cases of financial economic potential with only two currency choices:
- Scot£: Scottish Treasury and the Scottish Central Bank currency
A Scottish Government with its own sovereign currency (Scot£) can legitimately claim that any of the normal social necessities of a nation (Education, Health service, Energy, Transport, Welfare, Employment, Food, Housing) ‘are affordable’. These are all possible, but with one important condition and that is it must have sufficient REAL & NATURAL RESOURCES assets that can be mobilised to pursue these goals. Scotland is awash with these important resource assets.
The Scottish Sovereign currency (Scot£) has to be free-floating on the International Foreign Exchange Rate system (‘FOREX’). Floating the domestic currency eliminates the possibility of a default on financial commitments and will provide the Scottish Government the financial resources to sustain Economic Growth for the Scottish people. In this way it will be possible to enable feasible economic policies to be endorsed. Importantly, the Scottish government must not peg, at a fixed rate, our Scot£ currency to UK£ Sterling (as stated in the SGCR Report, Page 51 – 3.213); because this will revert all Scottish financial powers back to the Westminster government.
Importantly, by having a Scot£ currency this will allow the Scottish Treasury to manage and withstand any economic financial shocks thus protecting the economy due to any exogenous financial circumstances. Its powers would include having greater freedom to set its own macroeconomic policies and gives Scottish Treasury the control over Fiscal ‘Expenditure and Taxation’ alongside Scottish Central Bank control of ‘Monetary Policy’ with currency issuance and Inter-Bank Interest rates.
With its own currency, Scotland will be able to return to the European market which would be a rapid process by joining the European Free Trade Association (EFTA) and the European Economic Area (EEA) groups. This includes Iceland, Liechtenstein, Norway and Switzerland and the agreement contains provisions on Trade, Agriculture and Fish products. The core of the rules relates to the free movement of goods, capital, services and persons throughout the other 30 EEA States of the EU.
Using our Scot£ currency the Scottish Treasury, which will sit at the head of the Scottish government administration, is responsible for setting-out the precise and important legislative Scottish Parliamentary protocols that approve budgetary annual expenditure into the various government directorates (Ministries) on an annual and continuous, ongoing process. These will be known as the ‘Supply Estimates’ through various acts of the Scottish Parliament that will provide guarantees by undertaking interventions for the purposes of economic and financial stability. Nevertheless, all Scottish Government expenditure will have to be authorised by Scottish parliamentary consent and consequently the ‘Supply Process’ is a multifaceted affair.
The application of these parliamentary protocols, for budgetary expenditure, will allow the Scottish Treasury department at the Scottish Central Bank to guarantee the issuance of credit notifications or ‘allowances’ that represent a form of ‘money’ or ‘credit’ that will convey the power of spending into the Scottish Government’s Banking System through its principle account being the ‘Consolidated Fund Account’ at the Scottish Central Bank. Taxation is not necessary in this process to determine the necessary levels of government expenditure.
The Macroeconomic Research and the Financial Model for an Independent Scotland:
As previously mentioned, the Scottish Independence public debate needs an injection of new thinking and that comes openly from a private research study of the UK Government’s Economic Model known as ‘An Accounting Model of the UK Exchequer and Treasury’. This study and its findings culminated in 2021 after three years of dedicated research. It describes the actual financial functions of UK Governance linking Parliament, Government, HM Treasury, Bank of England and the wider financial sector.
The study has been approved by the University College London (UCL) with its publication ‘The self-financing state’. It has also been presented to the UK Government’s bank, The Bank of England. A recent discussion between the authors, UCL and the Bank of England Research Group took place at the Bank of England. I know this because, as a parent of one of the authors, I have witnessed its creation, discussed its detailed findings and shared in its revelations.
It is the first time, within the UK public domain, that a comprehensive research programme has been completed and published describing the precise legislative, administrative and financial mechanisms that drive the financial operations of the Independent UK Government.
This omission within economic literature is perhaps surprising, and some may assert damning, that the UK academic economics profession has, to date, not conducted its own study of the UK Exchequer in the interests of public education. Why not, you ask? I say, Educational Control!
The above mentioned 205 page study is mathematically complex but descriptively well written with enlightening information especially for those progressive macroeconomic thinkers dotted throughout the Islands, Highlands and Lowlands of Scotland. It describes an economic model that can be adapted and adopted for our own bespoke Independent Scottish economy.
The overriding feature of the study is that it dissects all of the main features of Parliamentary and Government protocols, Treasury Exchequer powers, Central banking and Banking services with respect to ‘Accounting’ functions and Ministerial departments budgetary requirements for financial and economic development, not forgetting taxation.
Additionally, it details the reality of Government Funding and the real purpose of Taxation. It explains the Government’s Bank accounts at the Bank of England and there inter-functionality. There are many more facets of Government management explained along with all historical references back to 1694 from the incorporation of the ‘Bank of England’.
The most important aspect of UK Government finance lies in the little known ‘Act’ called the ‘Exchequer and Audit Departments Act 1866’ (EADA). This single ‘Act’; particularly sections 13 and 15; authorises the Treasury to be granted ‘credit’ payments to its ‘Exchequer’ account from the Governments Consolidated Fund account at the Bank of England. Thus, all government expenditure is financed by the authorisation of Parliament.
It is worth noting that much of what is conceptualised in mainstream debate concerning the government’s macroeconomic model is contrary to the reality. A simple example of this is the ‘government budget constraint,’ that implies government spending is restricted because it is sourced from maintained balances of taxation. This is wholly untrue.
The simple Macroeconomic Solution for National Economic & Social Wellbeing of Scotland:
So, the first ‘Bills’ and then ‘Acts’ for the new Scottish Parliament must include a replicated version of the ‘Exchequer and Audit Departments Act 1866’, for its own Scottish Exchequer.
In Scotland what we seriously need are politicians who are fervently and dynamically dedicated to the cause of Full Independence and knowledgeable in every facet of how economic growth allied to social and financial wellbeing, are all possible with the optimum financial policies and as explained in this very short treatise.
It is our own currency that will deliver our wellbeing, not somebody else’s. In order to achieve that economic requirement it will be a necessary to operate within the following framework of international economic banking conventions and conditions:-
- The Currency must be issued into the Scottish Economy (Commercial Banks) one month before Independence Day:
- Scot£ currency becomes the official currency on Independence Day:
- The Scot£ currency must be Free-floating on the FOREX International Currency Foreign Exchange mechanism:
- Scot£ currency is issued only by our own Scottish Central Bank:
- The Scottish Central Bank (Government Account) has no foreign currency debt:
- Scottish Central Bank makes no promise to redeem the currency for gold/other commodities:
- All government Scottish taxes are payable only in the sovereign Scottish Scot£ currency:
My Comment and Final Conclusions:
What is needed is a blank sheet of paper with the above conditions written in bold capital letters. If the SNP do not apply these conditions as their Policy choices then they are confirming who they stand beside and it will be a betrayal of the Scottish People.
If the UK£ Sterling is retained as our currency then economic growth will be limited and places our economy at high risk.
The logic of the previous arguments is beyond question because education gives knowledge and knowledge provides the solutions. It’s so simple the mind is repelled. (JKG)
The importance of what ‘Full Financial Sovereignty’ means is paramount for the economic prosperity and wellbeing of Scotland from ‘DAY ONE’ of independence.
The way forward is with our own Scot£ currency that will allow us to re-enter the European Markets by joining EFTA and the EEA agreement. Our Scottish economy will grow throughout the EU market with a population of 446.8 million in Jan 2022.
If we use our own currency from day one of ‘Independence Day’ then within ten years we will have grown our economy by 50% and on our way to economic wellbeing parity with other successful European nations.
Staying alongside the slowly decaying economy of the rUK will be to our detriment and International disbelief.
Neil Tye – 26.09.22
Born 1947 in Bristol, third son of an Aeronautical engineer. Began my working career as a Chartered Topographical Surveyor and formed my first company in 1971 as Consulting Survey Engineers based in Cheltenham. Transferred with my family to Kishorn, Scotland in 1976. Developed first computerised measurement and structural models for modular fabricated oil platforms construction . After, forty years in this industry throughout the world, 26 Countries and incorporating lecturing and training schools in six countries. In 2012 invited to join the 26 man engineering team as consultant to work and advise on the salvage and re-floating of the ‘Costa Concordia’ capsized cruise liner at Giglio. While based in Italy, developed my interest in economics from 2009 especially interested in researching the causes of the GFC. Advanced my studies in macroeconomics through on-line courses at the University of NSW, Australia. Now a fervent Scottish Independence supporter and my goal is to establish an educational academy for macroeconomics. Join the ALBA Party in April 2021.
Family. Wife Lorraine, Two sons and five grandchildren:
Pleasures: Rugby and Cycling.
Abode: Rosemarkie, Black Isle, Highland.
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My thanks to Neil for this, the article is a bit longer than the normal for this blog but Neil was keen for it to be published and as the SNP Conference is ignoring the currency issue and was wanting to charge the Scottish Currency Group £2000 for a small stall, which they quite rightly rejected, I thought people could debate this important issue, through this blog, totally free of charge.
I am, as always
Yours for Scotland.
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