Scotland's Currency 2: Sound and Fury

For an independent Scotland, the SNP favours a currency union with the rest of the UK (rUK), to be known as the Sterling Area. This option has been comprehensively rejected by the unionist political parties. I discussed the economic case for and against a Sterling Area in Part 1; now I will look at the reaction from the SNP.

It is not Scotland's pound

A currency administered by the British Parliament, which
(by definition)  will no longer govern an independent Scotland.

The SNP has asserted Scotland has a right to a currency union, if it wants one. The Holyrood finance minister John Swinney has said:

The pound is Scotland’s currency every bit as much as it is England, Wales and Northern Ireland’s. Becoming an independent country will not change that – Sterling is a jointly shared asset which we are entitled to inherit.

A less measured version comes from the senior political commentator Iain Macwhirter:

... one of the partners declared the pound was no longer common property, and could be taken away, without consultation or negotiation, by a Conservative chancellor in an off-hand speech.

If Swinney and his allies mean Scotland has a legal right to impose a currency union on rUK, they are simply wrong. No such legal right exists. If they are asserting some sort of moral right to a shared currency, it is highly questionable at best. The pound is not a shared asset, it is a shared agreement.

If Scotland and rUK are a divorcing couple, currency union is not the balance of their savings account. It is the shared bank account itself. It includes an overdraft facility and a credit rating. There may sometimes be cogent reasons for a divorced couple to keep a joint bank account, but it is certainly not required.

If Scotland became independent, shared assets like the Bank of England's gold reserves could be divided between Scotland and rUK. A currency union is not an asset which can be divided or sold off; it is an ongoing agreement with risks and responsibilities on both sides.

Upon independence, all such agreements are subject to renegotiation. If both parties consent, they may be retained in a revised form; then again, they may not. Neither party can unilaterally declare particular areas to be off limits.

Today, the pound sterling is Scotland's currency. It is administered by the UK Treasury and Bank of England, both of which are ultimately responsible to the British Parliament. On day one of independence, the pound sterling as we knew it would cease to exist, along with the British Parliament's authority over Scotland. The two countries might choose to set up a currency with the same name and similar (but not identical) governance, but this is by no means certain.

Cute Cat Friday 2014-05-30: Dexter

Sleepy cat.

Scotland's Currency 1: Asymmetry of Risk

In previous posts, I have attacked the more irrational excesses of the No campaign in the Scottish independence referendum. Now I will address a major weakness on the Yes side.

The SNP's position is that an independent Scotland should have a full currency union with the rest of the UK (rUK). The two countries would share the Bank of England as their central bank. All public and private Scottish transactions would be carried out using the pound sterling. For citizens of a newly independent Scotland, prices, salaries and bank accounts would continue exactly as they did before. The SNP refers to this concept as the Sterling Area.

Unfortunately for the SNP, the Sterling Area has been comprehensively rejected by the British political establishment. In a speech on 13 February, Chancellor George Osborne said very clearly that rUK would not enter a currency union with an independent Scotland.

The banknotes would need some slight modification.

Cute Cat Friday 2014-05-23: Belle

Belle is gracing the back garden with her regal presence.

The Two Faces of January: Review

The Two Faces of January is an elegant thriller set in Greece in 1962, centred on a trio of American visitors. A rich banker named Chester McFarland (played by Viggo Mortensen) is touring Greece with his much younger wife Colette (Kirsten Dunst). They meet a young man named Rydal (Oscar Isaac) who scrapes a living as a tour guide and petty fraudster. Rydal befriends the couple, and is able to make himself useful to them, but is clearly attracted to Colette.

After a sudden confrontation with his enemies, Chester decides he and his wife must go into hiding, and Rydal agrees to help them. The stage is set for escalating tension and mistrust between the three protagonists, in a film which cheerfully plays with motifs from Greek mythology.

Cute Cat Friday 2014-05-16: Dexter

Here I am, now entertain me.

Locke: Review

In Locke, Tom Hardy plays the eponymous Ivan Locke. He is a solid man, a successful construction engineer and devoted husband and father. The foundations for a gigantic building will be poured at dawn the next day. Locke is in charge of the building site, and a few final checks remain to be done. After he is finished, his family expects him home to watch a football match with his two young sons.

Locke makes a decision which will turn his entire life upside down. Instead of finishing his work and going home, he gets in his car and begins driving from Birmingham to London. He feels he has a personal obligation there which is more urgent than his job and family.