Alex Salmond's been in a bit of trouble recently over whether to go for the Euro, start a new Scottish currency, or keep the pound. Keeping the pound, like keeping the Queen, all seems a bit, well, unionist, does it not? Actually, I don't think so. Despite its bizarre name the Bank of England is a UK institution and is therefore just as much Scottish as it is English. Similarly Her Majesty is every bit as much Queen of Scots as she is Queen of England. Nevertheless, lots of folk regard a policy of keeping the pound as somewhat of a climb down for Mr Salmond.
There is a way out of this, of course. With one jump Alex could be free. What Salmond needs to say is that an independent Scotland would have no official currency at all. Running the monetary system just isn't a legitimate function of government. The First Minister should say that an independent Scotland would leave the choice of what money to use in the hands of the people, from whose hands it should never have been taken.
This would require a ban on bailing out the shareholders or bondholders of financial institutions that got into difficulty. The government shouldn't be supporting any private company and that obviously includes banks. In addition a proper government of an independent Scotland shouldn't even protect the accounts of customers in banks. Caveat depositor. In such a world people would be very wary of banks and a reputation for conservative management would be essential for any bank to survive, let alone prosper.
More importantly, what would money actually be in a world (OK, a Scotland) without central banking? All historical evidence suggests that people would pick something like gold or silver as the money of choice. But that should be up to the people themselves, not a subject of legislation.
An independent Scotland could lead the world in re-establishing monetary soundness. Interest rates should be set by supply and demand, not by cosy cabals of bankers operating in a state created and controlled insiders' club.
There is a lot of momentum going for an established currency so I suspect we would keep the £. The difference between this and what Salmond proposes would be that we he wouldn't get to appoint anybody to the MPCProbably the eEnglish would be even less happy than now to accept Clydesdale bank notes.
The real killer for a Scottish government is whether the market would allow them to borrow at the same rate as the London government. I can't see the market being that foolish. In which case we have a calculable cost of independence.
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