“What is your Plan B?” was the cry. “What is your Plan B?”
Alistair Darling was most insistent that without knowing the
second preferred currency choice of Alex Salmond then the whole package offered
by the pro-independence Yes campaign was worthless. What a revelation! Scotland
was left slack-jawed and still hasn’t got over it more than two weeks later.
What are we to make of this lack of planning? What are we to
assume about the implied dereliction of duty by the Scottish Government and
specifically by that éminence gris of
Better Together, the First Minister.
I am going to make a statement that will have the No
campaign howling with derision but is a truism for all its apparent contention.
“It doesn’t matter what currency Scotland uses after
independence.” Have you got that? Are you suitably taken aback? I’ll say it
again just so that you can be sure that you read this correctly, “It doesn’t
matter what currency Scotland uses after independence.”
OK, I will admit that this is a rather glib statement if taken
in splendid isolation but that is how Better Together love to operate – take
one single strand of a policy, strip it bare and use that as incontrovertible proof
that the whole independence argument is a house of cards set to topple in on
itself. So I have taken this simple statement and thrown it down as a means of
capturing some attention. But more on that later.
Now, let’s just consider all the evidence. “What is your
Plan B?” was the question posed by Alistair Darling to Alex Salmond. In the White Paper Scotland’s Future if we refer to pages
109-117 we will quite clearly see that the options are laid out with the
preferred choice being a currency union. There are also Plans B, C and D
offered but for the sake of Darling I will list all the options:
1.
Currency union,
2.
Sterlingisation,
3.
Scottish currency,
4.
Euro.
Other than currency union, which we all know the story of,
the option that has been given the most mileage in the media is sterlingisation
which is the unilateral adoption of sterling without a currency union. Better
Together scorns this because it would put Scotland in the same boat as various
“banana republics” such as Panama, Ecuador and El Salvador – all countries that
unilaterally use the US dollar as their currency. I believe that Better
Together is missing a trick here – they could have added Zimbabwe to the list!
Cue all kinds of comparisons between Alex Salmond and Robert Mugabe! But I
digress.
One thing which Better Together fails to point out is that
there are further unilateral uses of other currencies out there in the wider
world – it’s a common occurrence in fact. Would you believe me if I told you
that the country with the highest GDP per capita does not use its own currency
and unilaterally uses a major world currency? It’s completely true. That
country is Monaco and it uses the euro. But that doesn’t suit the Better
Together narrative, as Monaco is a country which permits low taxation and massive
wealth to exist side by side.
The option of a new Scottish currency is remarkably
underplayed to my estimation. This can be a virtual equivalent of
sterlingisation under some circumstances. The first question would be “pegged
or floating?” The logical way to go would be to peg the new currency and
probably against sterling at an exchange rate of 1:1. A Scottish Central Bank
(SCB) would need to ensure that it had the money supply covered in Bank of
England tender which would now take on the role of foreign exchange reserves.
The currency is covered, press the button, go. But this is another banana
republic option isn’t it?
Or is it. Let’s see have a look around the world and see which
Mickey Mouse currencies are pegged to a fixed exchange rate. The Bhutanese
ngultrum is pegged to the Indian rupee. The Brunei dollar is pegged to the
Singapore dollar. The Swazi lilangeni is pegged to the South African rand. The
Danish krone is pegged to the euro. Whoa! Hold it right there. That’s not a
banana republic by any stretch of the imagination. No, the Danish Krone is pegged
to the euro through the ERM II process. So it seems that there is least one
respected currency out there which is pegged.
Did you know that the Hong Kong dollar is one of the top ten
most traded currencies on foreign exchange markets? It is, but the Hong Kong
dollar is fixed to the US dollar by a currency peg and has been since 1983. Who
would have believed that?
The other way to go with a Scottish currency would be to
have it floating on exchange markets. This can be achieved in various ways. The
currency can be allowed to float without restriction or there could be a
pegging mechanism where the currency is permitted to vary by a percentage
against a baseline currency or against a so-called basket of currencies within
a fixed band up or down. Then it is the responsibility of the SCB to apply the
state’s monetary policy to control the variance in the exchange rate.
The euro option is the least likely for now. To join the
Eurozone a country must first sign up to ERM II and then demonstrate the
ability to manage their own currency within the constraints of that agreement
for at least two years. Then euro membership can be negotiated. This would
necessitate the previously mentioned Scottish currency operating within a fixed
exchange band with the euro. Only after completion of this process would Scotland
be accepted as a full euro member.
The final option would be unilateral adoption of the euro in
the same manner as sterlingisation.
“What is your Plan B?” That is the biggest red herring in
Scottish political history. It’s all there to be read and understood.
The actuality now is that we have drilled into Plans A, B, C
and D and come up with A, B, C, D, E and F. But that’s splitting hairs. The
reality is that beyond Plan A there is an entire array of logical and workable
options that the Scottish Government could choose to adopt following a Yes vote
on September 18. The choices are there to be seen and to be made.
Possibly the grandest deceit being practiced by Better
Together vis-à-vis the currency arguments is the mantra that if you are
officially linked to another currency by union or by unilateral use then it is
impossible to exercise the levers of the economy required to create any
differentiation from the other, larger part of the relationship.
For Alistair
Darling to use this mantra and to promote it widely is to be knowingly
malicious. As a former Chancellor of the Exchequer he knows all about monetary policy – the process by
which the monetary authority of a country controls the supply of money, often
targeting a rate of interest for the purpose of promoting economic growth and
stability. He will also know not to confuse that with fiscal policy – the use of government revenue collection (mainly
taxes) and expenditure (spending) to influence the economy. Alistair Darling
happily conflates the two different areas of policy into one lump when he knows
very well that linked currencies would certainly have to aspire to the same
monetary goals but fiscal policy could vary wildly.
There are plenty of ready examples easily at hand to
demonstrate this to be the case. The Eurozone sees 18 countries – 19 when
Lithuania joins in January 2015 – pool their monetary policy through the ECB but
conduct very different fiscal policy aims. Rates of personal income tax, corporate
tax, value added tax, capital gains tax, … they vary from country to country as
each member positions itself to take best fiscal advantage of its economic
conditions. Why would this be any different for an independent Scotland in
currency union with the rUK?
Quite simply it wouldn’t be any different. Monetary
policy would, to a greater degree, be set by the Bank of England but
responsibility for fiscal policy would sit with Holyrood. If Scotland chooses
to be business friendly and cut corporate tax then so be it. If we choose to
slash, or even abolish, Air Passenger Duty then it will be done. If the
Scottish Government decides that Inheritance Tax is an anachronism and should
be scrapped then that’s how it shall be.
But the continued and oft repeated weasel words of
Alistair Darling and Better Together are being given an unquestioned and
unquestioning stage by the media in Scotland and in the rest of the UK.
The preferred option since the publication of the White
Paper has been a currency union with the rUK. This has been and remains the
official position despite all forms of political intervention from the three
main Unionist parties. Make no mistake though, this is political intervention.
As Nobel laureate Professor Joseph Stiglitz pointed out on August 20th, Westminster’s position is purely political posturing for the purposes of
affecting the outcome of the referendum. As he further concludes on Scotland, “Once they get independence, if that happens, then I think there would be
a very different position.” Professor Stiglitz has forgotten more about
economics in his 71 years than George Osborne will ever know and yet it’s
Osborne who thinks he has the whip hand in fiscal matters.
There have been rumblings that if
currency union is not permitted by Westminster then Scotland could abdicate
responsibility for the share of debt accumulated by the UK government on
Scotland’s behalf. Quite frankly this is probably as legitimate a bargaining
position for the Scottish Government as is Westminster’s of denying a union. It
is quite traditional for parties to a round of negotiations to come to the
table with rather a radical starting position. Then a compromise must be
sought. The matter of what equates to an asset of the UK is up for dispute as
the Scottish Government’s viewpoint is that sterling is indeed an asset whilst
Westminster sees it only as a functioning part of what is now and what will
remain in the future as the UK.
The two sides are well apart but matters
such as UK national debt nudging £1.3 trillion and increasing by £1 billion per
week is a key issue for all concerned. For the sake of round numbers Scotland
is indebted through Westminster’s benevolent hand to the tune of approximately £118
billion with that figure going up by around £93 million every week. Just for
your information, the Treasury in London keeps telling us that the UK is in
recovery but somehow it still manages to add £100,000 to national debt every
minute of every day. If that’s regarded as success I would hate to see the
Chancellor’s definition of failure. But this simply demonstrates that there are
two sides to every story although the Scottish media tends to keep quiet on one
of those sides.
Could Scotland walk away completely from
the national debt? The answer is undoubtedly yes. That’s an undesirable endgame
but it’s a potential outcome. Westminster would simply not be permitted to
swallow that outcome though so a compromise would be forthcoming. The most
likely compromise would be currency union. Professor Stiglitz knows how the
world works but then so does Alistair Darling. He knows full well that there
must be give and take. But he will never admit that and wraps up his Better
Together rhetoric in a cloak of certainties which is as convincing as the
Emperor’s New Clothes!
If the Scottish Government did walk away
from the negotiating table and wash it’s hands of the national debt then the potential
to start a new country from scratch but debt-free might be seen by many as an
optimal position. Plan A would be out the window but B, C, D and the rest would
be in focus.
So I would therefore modify my opening
statement:
“It doesn’t matter what currency Scotland uses after
independence for the moment.”
What’s the difference now? The difference is that we are not
in a position to judge the best potentialities until we have the full range of
true postures established. Will the Unionists insist on political dogma over
economic prudence? If that is the case for the rUK then every man for himself
and the devil take the hindmost! We will only know the best currency scenario
when all the cards have been played. An independent Scotland could easily
manage to thrive with any of the currency scenarios. Sound fiscal policy (and
if necessary monetary policy as well) will see the economy through to the
desired end. Be sure of one thing, the White Paper was not penned by one man in a
stream of consciousness. No, instead it was put together after a vast amount of
consultations with experts in every field – Professor Stiglitz was one of many
– and when those contributions were completed the whole exercise was costed.
Scotland’s Future most certainly can be seen as
a huge and all-encompassing exercise in joined-up political and economic
thinking, the likes of which have scarcely if ever been seen in the modern
political arena. The risks and the potentialities have been, to the largest
imaginable part, taken into account. The sums do add up and do you know what?
It doesn’t matter what currency we use as all the outcomes can be favourable.
But Alistair Darling does not want us to be counting on what
is established in the White Paper; he wants us to be counting red herrings.
Hey Alistair, what’s your Plan B if the rUK has to service
£1.3 trillion of debt all by itself? Hey Alistair, what’s your Plan B for
basing your Trident submarines with their WMD’s? These are not red herrings,
these are substantial and critical questions for Westminster that they cannot
afford to have to find answers for.
Currency Plan B? Relax, it’s not important.