Tuesday, 29 December 2015

Money Talking ....

The weakness of the Yes campaign centred around the future currency of an independent Scotland, made much of the claim the UK pound was England's alone. To a Scottish populous for whom Sterling has always been big in its economic sense of security the idea of the loss of the pound with no coherent alternative always seemed a step too far.  Wee Eck's 'It will be alright on the night' reassurance did not cut much ice and the threat that Scotland could not use the pound that was one of the 'Fear Campaign' strategies which held and still holds sway especially in the 'maybees aye, maybees naw' end of the No voters - especially those with investments, pensions and savings.

It remains an area of supreme weakness in any future referendum campaign for a 'Yes' vote and has, as yet, established no clear policy beyond the 'They can not stop us using the pound Sterling as it is a freely marketable currency and an international reserve currency.' line which failed us so badly in September 2014. In any future referendum there will have to be a clearly defined policy which may remain at its heart to continue to use the pound Sterling but looks more clearly Scottish, distinctive and marketable.

The choices Scotland faces in deciding on its currency are currently threefold given the European / North American market we carry out most or trade in. We can float our independent Merk against the petro-dollar, the Euro or Sterling.


The petro-dollar puts us within the thrall of the US Federal Reserve and its relationship with Wall Street. It will help boost our North Sea oil and gas industry by reducing the costs entailed converting dollars to Sterling for operations and oil trading. This move would make investing dollar currency in Scotland to develop third and fourth generation alternative wind and tidal generation easier as big US oil businesses start coming round to becoming big energy of all types of production businesses. A lead already being seen within both Shell and BP as they seek to become 'greener' companies over the next decade and build up a portfolio of wind and tidal start ups so they can enter the market when it is 'right for them'. The risk is as the global centre of world economics migrates ever more towards SE Asia and China is the dollar a safe long term bet given the serious USA trade and banking deficit which underpins it. Will the inevitable fluctuation of the dollar better match the needs of our own small Scottish economy or drag it down as currently happens with Sterling which is predicated always on the needs of the City of London and not on the sectors of manufacture or trade. Take up your crystal ball and see what you see.

Setting up the Merk to seek compliance with Euro entry raises the same problem which faces Denmark and Sweden with equally strong economies of similar size to Scotland, on a per capita basis. It does not make sense to put your economy within the straight jacket of a Euro which is the Deutsche mark in all but name unless your economy is in synchronicity with the German and Benelux nations, something which France, Finland and Austria manage with difficulty but has seen the Mediterranean and fringe nations fall off the edge. The stand out example of lack of synchronicity being what has and is still happening to Greece's stagnant economy and the related collapse of living standards in that country. The advantage would be the reduction of trade cost and easier Euro inward investment when dealing with one of our main markets but we would be simply swapping London and the Bank of England with Frankfurt and the ECB; who is to say it maybe better dealing with the devil we know.

This brings us to the pound we are told we can not have even though its is a freely tradeable, international reserve currency - after all, even China holds sizable Sterling reserves. In terms of Scottish trade setting the Merk off at 1 Merk to the pound sterling makes most sense and creates the least dislocation with the country we do 70% of our business with, one way or another. Within our own Scottish economy parity of the Merk to the pound Sterling will restrict the internal price inflation routinely seen within a replacement currency as the supply chain seeks to make use of the initial confusion to round up prices. The Merk to pound equality also means that international dealings already established in pounds will remain unchanged, at least in the short term. The downside is the Merk floated against Sterling could rise or fall in value in the short to medium term as the markets decide just how strong an independent Scotland's economy is.

Recent UK Treasury crystal ball gazing suggested the Scots Merk could be worth £1.10p within the first few years of international currency trading given the underlying balance and strength of the Scottish economy. A CBI report in 2012 recognised that Scotland was then and probably still is, leading the UK out of economic stagnation. As independent academics in the economic field have pointed out time and time again Scotland more than pays its own way in the current UK scheme of things, no matter how hard the UK Treasury seeks to fiddle the figures to say otherwise. At the heart of Sterling is a trillion pound debt black hole which shows no sign of reducing this side of 2020 and a banking and finance sector still trading and packaging debt, as if it was an asset while seeking to drag even more UK citizens into its 'free credit' maw with short term 'payday loans' at four figure rates of interest.


There is the 'reality' for a future independent Merk at its birth, a fiscal abyss on three sides, each with potential but all of them containing the same weakness at their centre which is the Western world's debt based fiscal speculation. The brave answer would simply be to say, "This is the Merk, world, now deal with it if you want our energy and trade." but it does not do much to reassure the 'maybees aye, maybees naw' fringe of No voters, worried about their Sterling pension funds and investments, does it?

Yet while pitfalls and traps abound which ever way we seek to travel when creating an independent Scotland's currency we need to have a clear path, defined and argued which ever of these poisoned chalices we seek to suck from.

7 comments:

  1. 1. The Bank of England is a Nationalised Industry.
    2. We (Scotland) arguably own 20% of it, or 11% depending on whether you calculate be 1945 or 2015 percentage of population.
    3. The only way Westminster could refuse to allow Scotland to use the Pound Sterling would be to buy out Scotland's share of the Bank of England.
    4. Where would they find the money to do this?

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  2. Interesting and it is an area which will need to be dealt with, again. The reason being that the westminster lot, whom we prop up, will churn out exactly the same myths about currency. I don't think the Scotgov were at fault on currency, they made it ckear that we would use the pound. The unionists went hell for leather in touting the crap on this issue.
    They had the whole of their media to scare the people, injecting fear into the minds of the voters. What is amazing is that many fell for this crap. The westmonster gravy train ticket holders relied on their media in demonising A. Salmond and in portraying him as very untrustworthy, so why would those with money stored, believe anything he said.
    It will be slightly different this time, but not much, meanwhile they will continue to demonise the SNP, and to call those who support them cultists and such crap.

    This time the Scotgov will do things differently, but one thing we really need is not to allow those whose main residence is not in Scotland, to have a vote and for thecwhole process to be monitored extremely securely, no fire alarms with folks still in the counting room, no vans going off into the night taking detours etc. It was amazing that the yes vote was so close last time, but as you point out, Scotland is keeping UKok afloat and westminster ain't gonna let us go without a fight.

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  3. There is no point speaking to the already converted, James, we need a strategy and policy which is as water tight as possible ..... your accurate position was ignored by the majority who bought into the pound scare .... the point of the article is, how do we solve the currency question?

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  4. Good article. Would a 1:1 peg of the Merk against Sterling be enough to prevent the latter tanking due to the loss of Scottish exports from the Sterling Balance of Payments?

    Would be interested in more info/source on the following 'Recent UK Treasury crystal ball gazing suggested the Scots Merk could be worth £1.10p within the first few years of international currency trading given the underlying balance and strength of the Scottish economy"?

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    1. Derick .... it all depends how the financial markets react to the idea that some where up the line the Merk could drop its link to Sterling. General reading is most of the world 'experts' see little problems for an independent Merk floated alongside Sterling but are concerned just how much of the current UK debt will underpin it. This caused a lot of stress to Sterling in the run up to September 2014 until Westminster stated that all current UK debt up to the point of Scottish Independence would remain as rUK debt on a 'Yes' vote.

      I think from my own reading the biggest concern for the City and fiscal markets will be the impact of losing the cash flow to the current UK treasury from important tax earners such as the £8 billion whiskey industry, £60 billion oil, gas and associated industries sector or the £14 billion food sector. Chuck in the loss of Scotland's over payment into the UK public purse and there are serious issues for a UK style low tax economy predicated on the City of London flogging and re packaging debt, for a Tory Government seeking to paper over the failure of their current austerity policy and 'laise faire' corporate taxation rules which continue to fail to drawn in the levels of income they should or is needed.

      Wee Eck's plan to take on a proprtionate share of UK debt was part of a plan to keep market speculation over the Merk dampened for a few years after Scottish independence (until Scottish debt to GDP markers had settled at around a predicted 40 to 45% - UK is currently 75 -80%) as well as reassuring the world markets about Sterling's future as a reserve currency.

      This technical argument is fine for those with a basic understanding of national economics but goes over the heads of most folk with their £1,000 in the Post Office Savings Bank.

      The rise of an independent Scottish currency against Sterling was first identified in the McCrone Report in the mid 70's and the same conditions remain in report after report over the period since. This has a major impact for our trade with our biggest market - England.

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  5. The Merk?

    Has its name been decided yet?

    I'd prefer it to be known as the Scottish Sovereign.

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    1. Nope .... but the Merk has a history of use in Scots. I had to use something to make the difference clear ...

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