IF ONE THING has bedevilled the SNP’s Scexit campaign, it is the currency issue. Losing the pound Sterling was one of the greatest concerns in 2014 among those who voted No to leaving the UK.
Since then, various groups or individuals in the SNP have been trying to navigate round this obstacle to the credibility of the secessionist cause. One attempt came when Emma Harper, SNP MSP for the South of Scotland, provided the solution we had been waiting for. How we had missed this, goodness knows, for its simplicity is breath-taking. On the BBC Scotland ‘Debate Night’ programme, she told us: “Like what I said when I used my example of when I was in Mexico, it’s workable. Plastic translates anywhere”. Of course: just pay for purchases and services with a credit card, and all those pesky questions about currency melt away.
This is the level of understanding that we are up against. Ms Harper has clearly missed links in the chain. In Mexico, she buys a meal in a restaurant and pays for it with her credit card. The bill is in pesos, and pesos are what the proprietor receives. The bill reaches Ms Harper’s credit card company and the pesos are converted into pounds Sterling. How many pounds Sterling are debited to Ms Harper’s account depends on the exchange rate on the day. Today, she would get 26.8 pesos to the pound. On another day, there might be more or fewer pesos for her pound; back in February it was only 23.9 pesos, so her holiday would have been more expensive back then than now.
Oh, and of course there is a credit card company foreign exchange fee (the standard is 2 or 2.5 per cent) and further fees if she wanted to withdraw pesos from a cash machine in Mexico. The words missing from Ms Harper’s understanding of the currency issue were ‘exchange rate’.
Ms Harper went on to say, “and actually there’s been people who’ve been given more money for Scottish pounds when they’re exchanging it at the moment, so our Scottish pound has the propensity to be really, really strong”. It is incongruous to find someone with sufficient vocabulary to use as sophisticated a word as ‘propensity’ who demonstrates a complete absence of understanding of our currency – something that is rife among Scottish nationalists. First, there is no such thing as a ‘Scottish pound’, and there has not been one for over 300 years. The UK has a single central bank, the Bank of England. Scottish banks may print their own banknotes, but the money they represent is Bank of England pounds Sterling. For every Scottish banknote printed the bank must purchase from the Bank of England and hold in deposit the equivalent value of Sterling or gold. The three banks that have the Bank of England’s authority to print Scottish notes are all now owned by companies registered in England.
It is truly worrying that Ms Harper has again been selected as an SNP candidate for May 2021.
If Scottish voters chose to leave the UK, they would cease to be a part of the political entity that has ownership of the pound Sterling, through the Bank of England. Scots could continue to use the pound as currency, but they would use it the same way as Panamanians and Ecuadorians use the US dollar. If I withdraw currency in Ecuador, the notes I receive are US dollars. They are not overprinted with ‘Bank of Ecuador’ but are exactly the same as the US dollars that I withdraw in California or Oregon, and I can spend them as local currency in the US. Similarly, Scots could, if they used the pound sterling in their separate Scotland, use notes printed by the Bank of England bearing the legend ‘Bank of England’. Scottish banks that currently have the right to print their own notes that are equivalent to Bank of England notes – if any such banks remained operating in a separate Scotland – would cease to be able to print their own Sterling notes. The Bank of England would not guarantee them as it does now. This currency solution would be called ‘sterlingisation’. It would mean that, in an ‘independent’ Scotland, the currency was labelled ‘Bank of England’, a delicious irony. It would also mean that Scots had no control over their own monetary policy, because they had no currency of their own. They would have no central bank of their own, and they would have no lender of last resort – no-one to underwrite any borrowing that they incurred. It is worth remembering that when you hear Kate Forbes complaining about not being able to borrow for spending and claiming that a separate Scotland would be able to borrow at will.
It is pertinent to observe that the Copenhagen criteria for membership of the EU require applicant countries to have their own currency, central bank and control of their monetary policy. Using Sterling would mean that Scottish membership of the EU was prohibited. Using Sterling was, however, the preferred method in Andrew Wilson’s Growth Commission report compiled for the SNP and, even after SNP SPADs had been all over it for a year, to try to sanitise it to make it more palatable to the SNP membership, there was at best grudging assent to it at the SNP conference at which it was discussed: Sterling would be used for a short period before transferring to a new Scottish currency, in the first parliament after Scexit. The perils of using a new Scottish currency have been clearly spelled out in an article in City AM on 5 November 2020 by Joe Ray: ‘Separatist Scots beware: A new Scottish currency would be catastrophic’. This really is a devil and the deep blue sea situation for Scottish separatists, as Sam Taylor has explained in his admirable ‘Choose Your Poison’ article for the These Islands think tank.
There have been various attempts by SNP self-styled experts to try to circumvent the problems involved in both using sterling and transferring to a new currency. Andrew Wilson himself has recently muddied the waters by admitting that using Sterling would mean not having monetary sovereignty for the first period after independence. “After all, we don’t have it now. We’d have all other powers. The monetary policy situation that we have now would continue until such time as that’s no longer in our interests.”
But Mr Wilson is wrong: the same situation would not continue. Scotland would not be able to borrow on the same terms as the UK borrows on now (or in the future). As a country without its own currency, without a lender of last resort to guarantee its bona fides as a borrower, with a very large deficit (8.6 per cent before Covid) and very probably with a junk credit rating, according to Moody’s credit rating agency in 2017 – who would lend to Scotland on any but punitive terms? I’m afraid Mr Wilson speaks with forked tongue. He is right to say that rushing to a new currency “would be short-term risky, politically difficult, and it would make the cost of government borrowing more expensive”. Except that the cost of government borrowing would already be very high if a separate Scotland used Sterling.
Mr Wilson’s plan is to use sterlingisation as a staging post while the new Scotland establishes a central bank, “sorts out borrowing” – a delightfully vague and opaque phrase – as well as taxation, growth and exports. Yet the figures I have seen for the foreign currency reserves required for establishing a central bank vary from £40 to £60 billions. How is a country already with a huge deficit going to raise that kind of money? The only suggestion I have seen is from the former maverick SNP MP, George Kerevan, who proposed using the Sterling deposits of Scottish inhabitants as collateral to underwrite a new central bank. That would go down well with Scots with deposit accounts in Scottish-based banks. Some of us have already removed our deposits from Scottish banks.
This has not deterred Dr Tim Rideout from talking about the S£ (Scottish pound). Dr Rideout is the man who gave a lecture a few years ago hailing 10 September 2020 as the day when Scotland voted to leave the UK. I must have missed that. Dr Rideout is of the view that, on the one hand, Scotland has no debt and, on the other hand, deficits don’t matter. He has comprehensively rubbished Andrew Wilson’s Growth Commission’s six tests for a new currency – to his own satisfaction, at least. Dr Rideout is a missionary for MMT, Modern Monetary Theory, also known as Magic Money Tree. He reckons that by the end of December 2023, with the new currency in operation throughout that year, the unpegged (in March 2023) pound Scots would stand at 1.12 to the pound Sterling and the Scottish Reserve Bank miraculously would have £50 billion of foreign reserves. Where did that come from? No idea. Because only Scots who had opted to change money from Sterling to the pound Scots would have any Scottish currency, international speculators would not have any, and so could not prey on it. For arrant nonsense, this takes the biscuit. Dr Rideout appears to wish the new pound Scots to be similar to the non-convertible currencies of poor and closed societies. I need to lie down in a darkened room and try to avoid any effort to make sense of Dr Rideout’s delusion. It is based 100 percent on unsubstantiated wish list assertions.
It derives from MMT, the economics of the free lunch, which, in a rather crude form, has been approvingly explained by an aspiring SNP candidate for Holyrood, a former aide to Alex Salmond and a cousin of Humza Yousaf, Osama Bhutta (formerly Osama Saeed). Separatists talk a lot about doing things ‘differently’ in Scotland outside the UK. For Bhutta, this means “economics not being about tax and spend, but more about the state literally creates [sic] money. It does not need our money. But the people need the state’s money”. He continues: “Once we have our own currency, we will have the ability to create money and spend it on the things that are needed”. When this is how he thinks about finance, it comes as no surprise that his previous parliamentary candidacy, for the SNP at Westminster in 2010, was dogged by a financial controversy. This is the kind of person on the SNP’s list of approved candidates.
Latterly in this article I have been dealing with the wilder and wackier reaches of Scottish separatist currency policy. How far these have permeated the SNP itself is hard to say, although for the most part the leadership does not promote them. Yet the leadership and membership remain indynial (sic) about the currency issue, with even their guru, Andrew Wilson trying to finesse problems, shall we say, creatively.
There is no appealing answer to the currency question for the SNP. That is why so few SNP spokespeople are willing to speak about the economics of Scexit in general and the currency question in particular. And that is why we need an interviewer like Andrew Neil to interrogate them repeatedly and pitilessly about these important issues.
Photo of Scottish Banknotes by BasPhoto from Adobe Stock