An independent Scotland should have its own currency – it's just a matter of when is the optimum time to launch it. Therefore, a clear plan on how an independent Scotland will set up its currency will be a very important component of the independence campaign ongoing. This article will outline what the Scottish Government has proposed for the adoption of an independent currency and how that will work in practice.
In a report published in 2018, Believe in Scotland’s parent organisation Business for Scotland outlined its stance on the development of an independent Scottish currency, stating that:
“An independent Scotland should have a sovereign currency at the time most in line with the economic and social wellbeing of the nation.”
Our stance is that any currency option, so long as it is coupled with independence, is significantly better than the status quo.
- In 2014, much of the debate regarding Scottish currency was between the options of maintaining a currency union with England and launching an independent currency.
- At the time, sterling was considered to be a stable currency and the UK was still a member of the European Union. Now, the calculations regarding this issue have changed.
- An alternative option to a currency union is the adoption of an independent ‘Scottish pound’. This is the option that has been put forward by the Scottish Government – they argue that this new currency would be known as the ‘Scottish pound’.
Setting up a new currency also requires the development of institutions such as a Central Bank and an expanded Fiscal Commission. A central bank is important as it allows for economic and price stability within the country or countries that it manages, including managing inflation.
- It is also what’s known as a ‘lender of last resort’, which means that it can lend to financial institutions experiencing difficulties that are at risk of collapse. For countries in the eurozone, this is the European Central Bank, while in the UK, the Bank of England holds this responsibility.
- The Scottish Government has argued that this change would not be an instant one however. Their independence currency strategy outlines how after independence, Scotland would continue to use the pound until the introduction of a Scottish currency is ‘practicable’.
- The newly created institutions, such as the Scottish Central Bank, would then set and decide the conditions under which an independent Scotland would be ready to introduce its own currency.
This means that businesses would initially continue to trade using the pound sterling after independence, which would help to make the transition smoother.
- Furthermore, pensions, wages and contracts would also be maintained but governed by Scottish institutions, meaning that no pensioner or worker will be worse off due to currency fluctuations.
Keeping sterling for a transitional period also helps to maximise flexibility. In the immediate aftermath of a vote for independence (in whatever form that may take). This may even help to boost exports both to the rest of the UK and to other countries.
- Independence is likely to result in sterling falling in value in the short term. If sterling is being used for a transitional period, exports from Scotland will become cheaper.
- England, Wales and Northern Ireland will also find that vital supplies imported from Scotland will also be cheaper than from nations outside this temporary sterling zone.
- Therefore, keeping sterling for a transitional period would boost exports, create jobs and significantly increase trade with rUK post-independence, despite Unionist scaremongering.
- Maintaining sterling for a period after independence will also allow the new Scottish Central Bank to build up currency reserves and establish itself in international markets.
- This means that when the time is right to launch the Scottish Pound, Scotland will have established itself as a safe and trustworthy nation in the eyes of international investors and institutions.
An independent Scotland would be able to set up its own currency in the years following independence. Alternatively, depending on the timescale related to the path to independence taken, it may be able to set it up in advance of independence. It may be advantageous to maintain stability by continuing to use sterling for a while as financial institutions such as the Scottish Central Bank are developed.
At the time when it is most advantageous to transition to an independent currency, Scotland will do so. That could be day one – or it could be a longer period such as a few months or even a year. It should not, however, be a long term or even medium term strategy, as the advantages of being a sovereign currency issuer will quickly overtake the stability advantages and mitigate future volatility.
Indy FAQs Coming Soon:
Will an Independent Scotland in the EU need to use the Euro?
How other countries have developed their own currencies and how long this process may take Scotland.