Scots, independence and the poond

The SNP are correct to point out that claims about passport checks on the border if Scotland becomes an independent country are wide of the mark, but on one issue I’m a little confused.

If they are to retain the pound as currency, who will set the interest rate, and in whose interests will they be set?

Currently the (unfortunately named, but it was founded by a Scot) Bank of England sets this rate, and while independent it does so on the grounds of what is in the UK’s best interest. With independence, surely, the Bank of England would only have an interest in setting a rate that accords with the remaining UK’s economic interests. So, does this mean the Scots end up with less say over their economic policy than they do at present? Or does it assume that the remaining UK will agree to some kind of common economic policy. For it to be meaningful, this presumably would mean that Scotland would have an effective veto, otherwise the UK would simply outvote them every time. In which case, how does it accord with Salmond’s assertion that independence will mean the English will no longer be bossed around by Scots (something which I would question anyway, but there you go)?

The third and fourth options, that Scotland adopts the Euro and that it establishes its own currency have been ruled out by the SNP. This presupposes that they have a right to tell the very country they reject what we can and can’t do with our own currency. The words ‘pig’ and ‘poke’ spring to mind.


  1. If my memory serves rightly, when Ireland became independent of the UK it introduced its own currency (the Punt) with the value pegged 1 Punt = 1 Pound Sterling. This carried on for decades until the Republic entered the EU alongside the UK, at which time the Punt was allowed to float against the pound, resulting in the immortal Guardian Headline ‘Punt Sinks’.

    The advantage for Ireland was that there was no currency differentation across the contentuous border.

    Four Scottish banks issue Scottish banknotes at the moment. I suppose an independent Scotland could declare these Scottish notes pegged to the pound. Scottish pounds will be just as acceptable in Milton Keynes and Berwick-on-Tweed as they are now…

  2. They could indeed do that, but it mean they were dependent on a currency the purpose of which was the assist the economy of another country. In other words, in practice they would have less control over their monetary policy than they have at present. It would be like a banana republic in South America tying its currency to the yankee dollar.

    You can already make the argument that Sterling is set at a rate that is more suited to the South East and London than the North and West (indeed, by extension this is one of the main objections to the Euro). That would be even more true post-independence with a Bank of England unshackled by the need to consider Scotland in its forecasts.

    Finally, while the Irish economy is now booming, for around 70 years it was a basket case. Is that what Scotland has to look forward to?

  3. Do they need a central bank? Is it strictly necessary?

    There are advocates of a gold standard and others who advocate a free market in money. There’s nothing which says a central bank must exist.

    Not that I can see the SNP trying anything so radical. I can’t even see them liberalising the economy to the extent it needs it for a prosperous Scotland.

  4. I’ve been flicking through their website, and I can’t see any evidence that they have any kind of monetary policy at all – amazing for a party seeking independence. It appears that the only thing they have to say on the subject is that they will keep the pound, but decline to say how.

    If any of my SNP-supporting fans out there want to point me in the right direction, feel free.

  5. The point about the Irish use of sterling post-indepedence (for 50+ years) is that it proves that an independant Scotland would not have to make a hasty decision in terms of which currency to use, there will be time to either adopt the Euro or establish its own currency.

  6. The Irish dependence on Sterling didn’t appear to help it very much. The SNP can’t have it both ways, citing Ireland as an example of a Celtic Tiger economy while adopting a monetary policy (by default) that, like Ireland, would ensure it remains a basket case for 50 years.

  7. Okay, just for clarity the SNP policy is to peg with sterling in the immediate post-independence phase pending an analysis of the Euro’s position and a referendum of the people of Scotland as to whether to enter that currency or not… we like to do things democratically in the SNP.

  8. I take it then that the third option – an independent currency – isn’t considered an option? If by ‘doing things democratically’ you mean offer the Scots a Hobson’s Choice, you are correct.

  9. It had always seemed to me that one of the “big bad things” for scots nats about the current union was that with the pound Scotlands economy was shackled to interest rates that were set to suite the English economy (south of england in particular). If the pound is retained post-independance as was pointed out above there would be NO influence by Scots on these interest rates. Just what benefit does independence bring then in that respect. The choice for Scotland would be – 1) keep the pound and lose all influence over interest rates or 2) join the euro and lose all influence over …. Hmmmm. Something doesnt make sense here.

  10. Look at Guernsey as an example. It prints its own money but is still sterling. The ability to generate its own currency provides an income for the government (in the rest of uk 98% of money supply is generated by banks for private profit instead of public good – a collosal burden on the tax payer). This would go some way to make up for the loss of English subsidy. I do not have a complete understanding of this yet, but anyone wanting more detail should start here (download pdf).

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