Scottish Independence: What about the money?

English: 1929 statue of William Wallace, one o...
Statue of William Wallace

Let me start by saying; I make no apology for my (partial) plagiarism in the content of this post. My raison d’être being; it is easier to put all the information in one place, to aid ease of reading/storage for my future use , and that of my readership…

Regular readers will have noted of late, I’ve been throwing my two pence worth into the boiling pot of the proposed (and preposterous) Scottish-English divide.  But I’ll make no bones about it, I don’t profess to fully understand all the financial aspects of the debacle, I’ll leave that to the ‘experts’.

Richard Edgar, Economics Editor at ITV, writing in the ITV News Blog, commented on financial factors involved in the subject (see here). On the matter of a separate currency he said… “But a currency isn’t just a tool for spending or holding wealth, it represents the belief that the paper notes or digits in a bank account will be backed up, ultimately by a state…” Would that state (if it were Scotland) actually be able to ‘pay the barer on demand’ – many don’t think so.

In And another thing, a secondary post to the original, Richard reported on another analysis about the economic implications of Scottish independence by John Kay, writing in the Finnacial Times. He provided a short extract from Kay’s piece which I have also reproduced (below). It sums up Kay’s argument:-

“Currency is a confidence trick: its value depends entirely on the belief that it has value. For a decade the eurozone sustained the belief that a euro was a euro – and always would be – through confident assertion and a treaty that had no exit clause. But the erosion of that belief is evidenced by the flight of deposits from Greek banks and the increasingly careful protective positioning of funds and contracts by large businesses. The illusion of equivalence will be difficult to restore.

What does this mean for Scotland? A currency union requires that everyone believes a Scottish pound is indistinguishable from an English pound, otherwise the costs and uncertainties associated with separate currencies are unavoidable.”

It reminds me of one stat from Angus Armstrong’s report which I forgot to put in my blog on independence earlier this morning: when England and Scotland first embarked on monetary union in 1603 (the Union of the Crowns – a full century before the Act of Union) the Scottish pound was pegged to sterling at a rate of twelve to one!

I still belive that Salmond’s desires, and those of the SNP, are a mostly puerile quest (see here). More recently, all be it somewhat flippantly, I also suggested that some of this claymore rattling is little more than a juvenile spat (see here). All designed to try to rewrite history, and for self-interested reasons. What do you think?

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