The Currency Question

[phart]

The Yes campaign fücked up majorly on currency - and it's not hindsight, a few on this board pointed this out regularly.

and also warned about the BBC and advised a course of action if one was serious about it.

[Toepoke]

The irony is that the constitutional upheaval that were are currently looking at may well settle into an almost federal system of govt. If that situation arises you would have four countries in a federated union using the same currency. That would largely remove the currency issue in a future indy referendum.

If Scotland plays it smart it could demand that any settlement under 'the vow's' tax settlement involves a proportion of North Sea revenues being put into an oil fund for future generations. That would help ease fears over whether we could afford future independence.

I hope that is able to become a possibility. Personally that would've been my own choice at the start of this whole process 3 years ago. A gradualist approach towards independence, I might even have become happy with a federated union being the end point. The key for me in all this was Scotland having the fiscal autonomy to grow our economy and close the imbalance between rich and poor.

[thplinth]

What the welk said is true. they would have gone to town with Salmond's Punt with his extra fat half pissed cartoon face on it and a trillion scary scenarios about why it will be doomed to fail...

Currency changes are scary, even perfectly executed ones. It is pretty fundamental to all our lives, the currency we use every day and it being a store of value for our savings. Which makes the scaremongering even more cynical and repulsive.

[scotlad]

An independent currency would have given people something to aspire to - true independence; an economy regulated by a government with control over the fiscal & monetary levers working to maximize the economic potential of the country's resources. Vide the Norwegian krone. What's aspirational about sharing (or piggy-backing on) a compromised currency with another nation? The Yes campaign fücked up majorly on currency - and it's not hindsight, a few on this board pointed this out regularly.

I completely agree; but like thewelk said, the No side would have just rubbished the idea of our own currency. Various 'impartial' experts would have been wheeled to explain why it would be a disaster and the feart would grow even more feart that their pensions and savings would be worthless.

Currency was always going to be a tricky issue but the CU idea was an attempt to neutralise it. Unfortunately, it presented Westminster with a political open goal - it was something they could say no to.

[scotlad]

What the welk said is true. they would have gone to town with Salmond's Punt with his extra fat half pissed cartoon face on it and a trillion scary scenarios about why it will be doomed to fail...

What, like this you mean:

[thplinth]

What, like this you mean:

Hmmm...yeah something like that.

[Khana Lagur]

'Short-term' currency unions or agreements have tended to be inherently unstable as they attract speculators, precisely because they are short term. If there is no absolute commitment from the participating governments to make it work (and in this case there wouldn't have been) then you get massive capital flows from one participant to the other as speculation on the viability of the planned emerging currency takes hold. Look at the Czech / Slovak Koruna union in January 1993 which lasted five weeks instead of the intended 6+ months. Or Sterling's humping out of the ERM.

At the moment, a planned drift towards a fairly loose 'British Confederation' looks like the least bad option. Not that we've the politicians to plan for that.

Donny - you're point has merit and a certain truth. As someone who has worked at the right hand edge of the currency markets I know only too well what you're getting at. But what makes currency unions unstable, as you put it, isn't the commitment of the governments to make them work, it's the economies that underpin them - evidence the euro. People often make the mistake of thinking that currencies underpin an economy. The likes of the Yen, Norwegian krone, Swissy, NZ & Aussie dollars show the fallacy of that.

The Czech/Slovak 'union' was never going to work as neither of the economies had the underlying strength to sustain themselves. A Scotland/rUK currency union would be between largely parallel and stable economies and both reasonably strong ones to boot. I simply don't see any reason for capital flight when Scotland's use of sterling would effectively make it a de facto commodity currency. As economies recover, capital flight - if it happens - generally goes to the regions producing the raw materials that will underpin and sustain that recovery as they show the current strength.

Few people really understand the role of currency in world markets. Only about 15% of the $4 trillion per day of global currency deals are linked to physical transaction trade.The rest is used speculators playing games. That's why apparent news causes volatility, rather than actual events. It's simply the world's biggest game of poker.

[DonnyTJS]

Donny - you're point has merit and a certain truth. As someone who has worked at the right hand edge of the currency markets I know only too well what you're getting at. But what makes currency unions unstable, as you put it, isn't the commitment of the governments to make them work, it's the economies that underpin them - evidence the euro. People often make the mistake of thinking that currencies underpin an economy. The likes of the Yen, Norwegian krone, Swissy, NZ & Aussie dollars show the fallacy of that.

The Czech/Slovak 'union' was never going to work as neither of the economies had the underlying strength to sustain themselves. A Scotland/rUK currency union would be between largely parallel and stable economies and both reasonably strong ones to boot. I simply don't see any reason for capital flight when Scotland's use of sterling would effectively make it a de facto commodity currency. As economies recover, capital flight - if it happens - generally goes to the regions producing the raw materials that will underpin and sustain that recovery as they show the current strength.

Cheers. I'm not doubting your expertise at all here, but as you say yourself ultimately it's a game of poker. Which is why (though I agree that both the Scottish & rUK economies would have been viable) the short term nature of the CU would have drawn punters to the table to bet on any relative disparity from 1:1 when the currencies separated.

Regardless, it's all moot for now. Scotlad & thplinth are doubtless correct that a stated intention to float an independent currency would have drawn flak, but of course it would - it was a political campaign, ffs! Any policy put forward by one side will be attacked by the other - as we saw, ad infinitum. The chosen alternative didn't exactly get through the process unscathed.

The fact remains, in my view, that the policy of keeping sterling one way or another, particularly as this was a fall-back position from the previous stance of joining the Euro, was weak - it was riddled with fundamental uncertainties and a gift to the No campaign. A strong stance on a truly independant currency would be just as open to attack, but would also have been a far stronger position to defend with clarity.

Pussies.

Edited September 21, 2014 by DonnyTJS