It All About The Money

The debate on Scottish Independence has been in the headlines for months. To be fair to our press, media, twitter feeds, etc., it is pretty justified given that it is probably the biggest single political and economic event in UK history for a century……it’s certainly a top three’er!

 

We can all debate this from many angles but to stop you getting giddy with excitement……there is only one thing that England is really bothered about……money. To be fair, Scotland should also be very bothered about this as it is their single biggest issue.

 

If ‘yes’ should win, the biggest question revolves around Scotland’s choice (or lack of one) of currency post-independence.

 

The options are:

 

Sterling Union: A continued currency union with the remainder of the UK. On the face of it this would be the simplest and cheapest solution – no changes needed to financial institutions/services. The main problem here is that all 3 major political parties in the UK have refused to agree to this course of action. There would also be precious little actual independence achieved – still using the Pound, no independent Scottish central bank and with decisions on monetary policy made in London.

 

Sterlingisation: Using the Pound, without a currency union. This is in theory a viable option – keeps costs to a minimum, and has precedents such as Panama’s use of the Dollar. However, this choice gives zero control over monetary policy; the Bank of England would have no obligation to consider the plight of Scotland in any of its policy decisions – problematic (for Scotland) if economic cycles begin to diverge. Again, the amount of independence gained is questionable.

 

Join the Euro: Joining the Euro might seem sensible but at the moment, Scotland is the second biggest fish in a pond of four (England, Wales and Northern Ireland), something that will certainly not be true in the Eurozone. Added to that is the fact that any application to join the euro is subject to a veto by any EU member – Spain doesn’t want independence movements encouraged due to its Basque and Catalan separatist regions.

 

New Scottish currency: Launching a brand new currency is not a simple matter – it is expensive for one thing. However the real issue is the value that the world would place on such a currency with so little history and an uncertain future. Exposure to the global FX markets is no small risk, particularly for an open economy like Scotland that would rely on two very susceptible industries – oil and finance. The issuance of government debt would likely prove expensive too, as it is for most brand new issuers on the global stage. This option, whilst truly being independent, would be the riskiest of all of the above.

 

So there you have it. it’s all about money……but isn’t it always?

 

Expect your TV to be filled with politicians pecking like randy cockerels with the money shot of Edinburgh Castle in the background.

 

Do you not find it strange to be a voteless, powerless spectator of the biggest constitutional change in our country's modern history?

 

Just a thought......