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Scotland’s currency options

An article for the Wall Street Journal …

Last week the U.K.’s Conservative, Labour and Liberal Democrat parties got together to administer a Flodden-style thrashing to Alex Salmond’s dream of an independent Scotland using the pound. But there’s a problem: short of an actual Battle of Flodden, what exactly could a Westminster government do to stop the Scots from using the pound?

Imagine walking along Edinburgh’s Royal Mile in a newly independent Scotland. You want to buy a Bay City Rollers CD as a souvenir and you have a fiver issued by the Bank of England in your pocket. If you can find a vendor willing to take that English note and give you the CD in return, the English authorities would be no more able to prevent the transaction taking place than the U.S. Treasury is to stop rickshaw drivers in Nepal from taking dollar bills in exchange for rides.

There is also nothing necessarily to stop a Scottish government conducting its business in sterling, euros, or whatever else. But it would need to be able to get hold of the requisite sterling, euros, or whatever else. A government that issues its own legal tender has three ways of getting the money it needs to fund its activities: It can print it, it can borrow it, or it can tax it.

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3 comments to Scotland’s currency options

  • Chris Hulme

    I don’t care if an independent Scotland uses the pound, as long as we don’t pick up the tab when it all goes pear-shaped.

  • waramess

    There is a very popular view that governments should have their own currency because in extremis they will be able to print more.

    Print borrow or tax you say. How about earn, because if Scotland were to adopt the pound per se then the only way other than borrowing would be earning.

    So there we have an equivalent to the gold standard: as the UK inflates its currency the Scots get richer because their farmers, for example, get paid more for 1k of potatoes than before.

    So, there you have it, the governmnet need no more taxes but the Scots get richer

  • All this stuff does not refelect the fact that SCotland has a huge banking.insurance and asset management business with mainly English depositors.

    What exactly is the point of keeping your bank account deposits,your pension fund and your insurance in another country.You immediately take on political and exchange risk.

    Therefore any English depositor will be mad not to0 remove their money fromScotland forthwith.

    That is why I have said many times however they vote Scotland will not become independent.