No, Scotland isn’t in a currency union

A currency union is when two states use the same currency.

The UK is a single state, that uses a single currency: the pound sterling.

James Meadway, who describes himself on his twitter profile as “Senior economist at The New Economics”, asserted on Twitter:

“You’re already *in* a currency union. Who in Scotland elects the Bank of England?”

When I pointed out to him this was not true, his reaction was:

“Sigh. (1) what currency do you use? (2) who agreed to this? (3) where is yr central bank?”

To which the answer is: I live in the UK: the UK is one state with one currency: the central bank of this state is the Bank of England.

Now it is true that several other microstates use the pound.

Jersey and Guernsey, which are the last remnants of the Angevin Empire; the Isle of Man, which became attached to the UK as a feudal possession of the Plantagenets, uses the pound: Akrotiri and Dhekelia on Cyprus, the “Sovereign Bases” which are – like Gibraltar – last remnants of the British Empire, use the pound. All of them are therefore in currency union with the UK. None of them had any real choice in the matter. All of them have this in common: they are small places, microstates, unable to be quite independent, and in any case never allowed the freedom to find out if they could manage on their own. None of them qualify to be EU members, nor ever could, though several of them have “special relationships” with the EU, arranged by the UK: so too could Scotland, probably.

This is the goal of the SNP, declared in their White Paper: to make Scotland a neo-colonial possession of rUK. To reflect a common campaign claim of theirs: no other country which got its independence from the UK ever then turned back and submitted to currency union voluntarily. But that’s what the SNP wants for Scotland.

And this goal – narrow and limited and appalling in consequence though it is – has gone unchallenged by the Yes movement. The Yes movement like to claim they are broad church and diverse, that a vote for independence is not a vote for SNP policy: but though some scattered individuals have declared themselves against currency union, for the most part, the Yes movement is complacently united behind this SNP policy and utters no criticism, no matter how rash Alex Salmond’s promises.

In part this is because a large proportion of people who intend to vote Yes, are voting not for independence but because they believe they have been promised currency union, and Alex Salmond has tied his political future in Scotland to a commitment that they will. These voters might well have said No to full independence: they don’t think Scotland is ready to go it alone. They want to know that they can vote Yes but still have the same pound, the same Queen: that they won’t really be making a big change. These are the voters who emphatically said they would rather have devomax/devoplus in 2012. The Better Together campaign tried to catch these voters by promising “more powers” for the Scottish Parliament after the next general election: Yes Scotland/SNP, in a flash of canny brilliance, caught these voters by promising them that by voting Yes they would get devomax, not independence.

Currency Union TweetWhether Yes supporters are aware enough to realise they cannot afford to put off those voters by pointing out that currency union will only be legislated at Westminster on terms beneficial to rUK, or unaware enough to have swallowed whole the story that they can vote for devomax and call it independence, the result is the same: no public opposition to currency union.

One line that’s being taken is persistently “We’re already in a currency union!” which shows a profound misunderstanding of what a currency union is. Scotland is a devolved part of the UK state. The UK state has one currency. Scotland is therefore not in a currency union, though several microstates are in currency union with the UK, as described above. (It would greatly mischaracterise the power structure of the relationship to say “the UK and Jersey are in a currency union”. Jersey may store trillions of personal wealth – it’s the richest offshore tax shelter in the world – but that gives Jersey voters less say in how their island economy is run than we have.)

I did wonder where Yes campaigners were getting this from. If you take the trouble to look up any neutral information resource about what currency unions are, you will find without exception: two or more states can be in a currency union, one state cannot.

Well, given James Meadway’s senior-economist status, they are getting this from the New Economic Foundation. Which, by a curious coincidence, was touted to me on Facebook just the other day by a Yes voter “Check out New Economic Foundation for good unbiased thoughts on the economic questions and concerns.” Apparently what “good unbiased thoughts” means in this context is “supports SNP policy”.

I am undecided about whether or not I support Scottish independence. But I understood since March that, unless some alternative came up, I would have to vote No to oppose currency union.

No alternative has appeared. Alex Salmond has claimed publicly that a vote Yes means a vote for currency union, and the Scottish Government have a clear claim to a mandate. If the Tories offer currency union, to be legislated before May 2015, I think the SNP would have a hard time saying no to it, no matter what the fiscal conditions set: they have marketed the Yes vote to voters uncertain about independence by promising them currency union.

I read recently a splendid post on critical reading and thinking: Scottish Independence: How do you decide?

How it seems to me most Yes voters have decided, is to assume that the SNP is telling them the truth, and all of the other parties are telling lies.

HarrodsThe influence of the Scottish Greens is sadly negligible, apparently by their own decision: they haven’t attempted to counter the misinformation about currency union spread by the SNP, nor are they planning to campaign against currency union in the crucial months after 18th September if Yes gets the majority: there are just three articles on their website about currency union, and the only one explicitly opposing it was published in January. All the Scottish Green party members I have spoken to directly about it have either utterly misunderstood currency union (one compared it to Harrods getting to use lots of different currencies) or else think it will be safe to wait til May 2016, well after the date the SNP have set to launch currency union, to oppose what will already have been legislated – if the SNP can convince the Tories to legislate it, and if Labour and the LibDems can be persuaded not to block it.

What I think is also significant:

I went from being undecided to being Vote No in the space of a few days in March, having read the White Paper and the Financial Commission Working Group’s report, understood what the SNP intended, and understood that I could not in good conscience vote for it.

Since then, I can count on the fingers of one hand – quite literally – the number of Yes voters who have agreed with me that currency union is a bad idea and must be opposed.

Most tell me that currency union is a splendid plan. Some – my impression is a minority, but I’ve done no polling – tell me that they too are against currency union, but I should vote Yes anyway, it won’t be implemented. They have various reasons why it won’t be implemented, ranging from “Westminster won’t agree” (which is entirely possible) to “the SNP are just bluffing, they don’t really want currency union” (which is entirely plausible).

It seems clear that the referendum will be a very, very close vote – that in broad terms, the Scottish vote is split down the middle, and we could even spend the 19th and days afterward waiting on recounts.

If Yes gets the majority, by however tiny a margin, huge changes will be implemented, which nearly 50% of the country voted against. But within the 50% who voted Yes, a large proportion think they voted for currency union, and another large proportion are voting Yes thinking they’re sure to get an independent currency.

So, with regard to all economic issues – for, make no mistake, the issue of currency and a central bank is basic to an independent country’s economy – if Yes gets the majority, an overwhelming majority of Scottish voters will suffer changes they didn’t want and didn’t vote for.

I’m voting No, and considering all of above, I hope No gets the majority next Thursday.


Filed under Economics, Politics, Scottish Politics

14 responses to “No, Scotland isn’t in a currency union

  1. Whichever way it goes, there’s going to be a lot of unhappy people not getting what they voted for, and I’m not sure I’ve seen a plan to satiate the denied. That’s the part I’m dreading the most. I remember going to a talk last Fringe in Parliament about writing a future constitution, and that was one of the biggest questions: how can you please the denied when the biggest thing they wanted was taken away from them?

  2. Chaz

    You raise an interesting point, but I don’t believe we should say ‘no’ to independence purely on a currency issue. There’s far more to take into consideration. If you’re voting ‘no’ solely because of this, you’re extremely short-sighted. I’d like to keep the pound, but if we have to join the euro, so be it. Alex Salmond might not like it, but independence is about more than the SNP.

    I don’t believe everything politicians say – only a fool would – but I believe independence would be good for Scotland. And an independent Scotland means the end of Tory rule for good. That’s far more important to me than whether or not we can keep the pound.

    • I’m sorry that you didn’t understand my blogpost.
      Currency union must be legislated at Westminster. It means continued rule by Westminster of Scotland. That’s the price of “keeping the pound”.
      We will also lose 59 MPs at Westminster, thus moderately increasing the chances of Tory government in rUK.
      Your preference for keeping the pound is therefore quite directly a preference for increased Tory powers in iScotland. If you really want “the end of Tory rule for good” you quite definitely need to write to Alex Salmond and to your MSPs, to say explicitly that you are voting Yes and you oppose currency union.
      Otherwise, if it’s Yes majority, you are very likely to get what you voted for – increased Tory powers in iScotland, less democracy – but not in the least what you say you want.

  3. It all depends on whether one thinks the fact that a government was elected for a single state that a particular area within it didn’t support somehow renders any decisions they or their appointees make on the currency (or anything else) illegitimate for that area as distinct from any other area. If you feel that Scotland is sufficiently distinctive, obviously the answer is yes.

    But on the face of it, it seems distinctly odd to expect Scotland to be somehow more influential on currency questions after independence than with 50-odd members directly elected to Westminster (even if they are nearly all for opposition parties). At the very least, it’s hard to imagine such a management scheme being any more accountable to Scottish voters than present arrangements. And AFAIK the SNP have given no idea as to how, in detail, they expect a currency union actually to be managed, if it’s not to descend into reciprocal cat-calling between London and Edinburgh as to who’s being more spendthrift, and who’s engaging in predatory manipulations of tax rates to do the other down, and all the rest of it,.

    • It all depends on whether one thinks the fact that a government was elected for a single state that a particular area within it didn’t support somehow renders any decisions they or their appointees make on the currency (or anything else) illegitimate for that area as distinct from any other area. If you feel that Scotland is sufficiently distinctive, obviously the answer is yes.

      No. Currency union is when two states use the same currency. If you think Scotland is already legally an independent sovereign state, well… all there is to be said, what on earth do you think the independence referendum is for?

      But that aside:

      The vagueness of the SNP on currency union – and on several other major issues – suggests strongly to me that it’s a vote-getting tactic – they’re saying anything they can think of to get Yes votes. But the problem with that is, if Yes does get the majority, what happens? In the 1997 referendum, we knew what we were voting for. In this referendum, we do not. The White Paper was both verbose and foggy.

      There is no doubt, though, that if Westminster agrees to legislate a currency union, the balance of power will be with Westminster: they wouldn’t have any reason to do it unless it can be made secure for rUK and profitable to the Bank of England.

  4. David Lee

    I really don’t see the sense in treating the currency union as some sort of deal-breaker. A Scots pound may well be your preferred option (it’s certainly mine) but seeing as it’s not on the table right now we have the choice between two imperfect options.

    The way I see it is – if you’re walking barefoot through the snow and you find a pair of plimsolls, do you ignore them because you really wanted a pair of snow boots? Or do you take them, safe in the knowledge that if you find a pair of snow boots over the hill you can upgrade then?

    • The way I see it is – if you’re walking barefoot through the snow and you find a pair of plimsolls, do you ignore them because you really wanted a pair of snow boots?

      The way I see it is: if you’re walking through the snow in plimsoles, why would you kick them off and walk barefoot because you’ve seen someone else wearing snowboots?

      At the moment, with a devolved block grant, the Scottish government has fiscal control over devolved areas, and as the bedroom tax I think proved, a moderate amount of influence in reserved areas. That’s plimsoles.

      Currency union means taking the plimsoles off and walking barefoot, thinking hopefully that as other people have snowboots, you ought to be able to find a pair of snowboots over the hill.

  5. David Lee

    On a related note, I think we seriously overplay the idea that a currency union means hands-on Westminster control. The terms of a currency union will likely be “don’t balls up the pound by running a crazy deficit and bankrupting the economy”.

    Seeing as the UK deficit and debt is as high as it is I think Scotland would have to try pretty hard to be the country that was jeopardising the value of sterling.

    • The terms of a currency union will likely be “don’t balls up the pound by running a crazy deficit and bankrupting the economy”.

      And it will be entirely up to Westminster and the Bank of England to decide what they think will “balls up the pound”. It won’t be anything to do with Scottish voters any more.

      Seeing as the UK deficit and debt is as high as it is I think Scotland would have to try pretty hard to be the country that was jeopardising the value of sterling.

      I see. You’re making a leap of faith that Westminster and the City of London via the Bank of England will treat iScotland with total fairness when it’s completely at their mercy. I don’t agree.

      • David Lee

        Except I don’t think we’re at their mercy. If they won’t agree to a workable currency union we can walk away from the debt. The UK will have lost a big chunk of its GDP, the bulk of its exports and will be saddled with 100% of the sovreign debt.

        There would be no advantage to the UK in imposing onerous conditions on the currency union. They want a stable currency as much as we do and they can’t possibly tell their constituents that they stiffed the UK economy just to spite the Scots.

        • If they won’t agree to a workable currency union we can walk away from the debt.

          Oh sure. So your plan is that iScotland launch a new central bank and a new currency as a defaulter nation, with the sixth-largest economy in the world blackballing us to all its associates? What a clever idea.

          • David Lee

            Brushing the sarcasm aside, we won’t be a defaulter, will we? The debt is owed by the UK Treasury, and will remain so after we leave. We will be a new state, who may choose to make a goodwill contribution towards the UK’s debt, but are not in any way liable for it.

            Out of interest, do you really believe that the UK will act as maliciously as your previous replies suggest? I’ve noticed an odd trend where unionists seem to fear vindictive reprisals, whilst us crazed nats are the ones who expect them to be good friends and neighbours.

  6. Rab

    As a likely “yes” voter, I think your article is spot on. My only reservation is that we don’t really know how many people are voting “yes” thinking that they are going to get a currency union — we can only guess.

    My own analysis is this. The Better Together tactic of telling Scots that they “cannot have the pound” has been immensely damaging to the “no” campaign. This stance (it must have seemed like a good idea at the time!) was originally interpreted as a sign that rUK (or at least its parliament) would refuse to engage in a currency union, and Scotland would be unable to retain the power to use the pound as currency. Although the SNP argued that UK parties were bluffing, I think the stance originally had some force. When it then emerged that Scotland could “use the pound” (or any other existing currency) if a currency union was refused, the UK stance looked exactly what it was — a scare tactic to bump people into voting “no”. This gave the SNP credibility (“We were right all along!”), and now people are comforting themselves with the thought that a currency union is likely, but even if we don’t get one, we can “keep the pound”.

    We now are in the ludicrous position that we might end up using the pound, but not in a currency union, not because this is a good policy for Scotland, but just so that the SNP can shove it up Darling and Osborne.

    Not for the first time, the SNP look credible on currency, not because they actually are, but because Westminster politicians have been so monumentally inept that Salmond looks respectable beside them. I think Salmond did say at one time that he was ahead of other politicians, not because he’s good, but because they are so bad. And he’s right.

    I am swithering on how to vote now, but I think I will stick with “yes”. I don’t know how things will work out, of course, but I’m hoping that, after a “yes” result, there will be a realignment of Scottish politics, and the currency question will be reopened. I just find it hard to believe that we can’t find a sensible way through this. I respect your view that the currency issue is so critical, you are obliged to vote “no”, but I don’t think I agree.

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