Article 1 - Argyll Radio Series
Scottish Currency is a subject which everyone now says needs to be debated. Everywhere I go people tell me we need to have a debate now about currency for an independent Scotland, but there is no such debate actually taking place. So let us see if we can establish one and try to get a real interactive debate on this important subject under way.
I want to trigger this debate by writing a series of small articles examining the ideas around an independent currency for an independent Scotland. I will welcome comment, including challenges and criticism of the issues I am raising in each article, and I will respond to all of the questions or comments I get from readers or listeners.
Ronnie Morrison and I wrote a wee book called ‘Moving On’ on this subject, which we published in Feb 2014, because we were keen to see this issue debated in the run up to the Referendum. This never happened however, there was no real debate within the Yes Campaign at that time. We all now know how this subject was relentlessly pursued by the spin-doctors of the Better Together media, and how it played effectively on the ignorance and confusion which ‘project fear’ requires for its development.
I wrote another wee book which was published in March 2016 called ‘Currency – in an Independent Scotland’, which looked at the experience of the Referendum and returned to the currency issue. So my position on this issue is clear, I agree that it is essential for an independent Scotland to have its own currency, if it wants to have economic as well as political independence. I hope in this series of articles to explain just why this is important for Scotland.
The first consideration however has to be to ask the question why do we need a new currency? What is wrong with the one we have? After all if something is not broken, why should we try to mend it?
So let’s have a look at our present currency, sterling. This is a ‘Fractional-Reserve,’ international, fiat currency. (A fiat currency is one which is not supported by Gold, but only by the economic strength of the issuing State).Does this currency serve the Scottish economy well? That is the important question, because money, or ‘currency’, has no intrinsic value, its only value to society is its use as a medium of exchange in the economy. If it does this job well and effectively, then it helps the economy, if it fails in this central function, then it damages the economy.
There can be no doubt about it; Sterling has failed the UK and the Scottish economy. The policy in the UK for some time now has been to develop large, ‘too big to fail banks,’ and rely on them to support the economy. So how has that worked for Scotland? Well RBS was the largest bank in the world in 2007, just before the crash, the media are saying today that it has lost £50 billion of tax-payers money, in that period. The truth is that this is an extremely conservative estimate of the losses. The RBS losses have been much greater than that if fully accounted. Indeed the UK taxpayer has continues to give taxpayers money to support failing banks and put £600 Billion more of Taxpayers money into Quantitative Easing in the UK to stimulate growth but to n o avail. But that is in the past, some will say, it is the future that matters, not the past. I note from the media today that RBS lost a further £2 Billion in the first 6 months of this year. So the present does not look particularly good either, and the future for the RBS and for sterling looks even worse than the past, because the underlying cause of the big bank crash has not been addressed, and is getting worse.
RBS is what the American Economist Yalman Onaran calls a ‘Zombie Bank’ in his book Zombie Banks. That is a private business which has failed in accordance with the law of the land and should be bankrupt by law; but is being kept alive by State support and by ignoring the law. This ‘Zombie’ has more liabilities than it has assets, and so by market and legal standards it should be ‘dead,’ but is being kept alive by a State subsidy lifeline.
This currency, and this failed banking model, is hardly the design required for Scotland’s new financial structure.
Sterling, and indeed the whole Fractional-Reserve system, which includes the Dollar and the Euro, are fatally flawed, and doomed to failure, as an increasing number of economist are acknowledging. It would be very unwise for the Scots to build their new democratic State on this flawed foundation. So, the first point of debate on the currency which I would suggest needs to be understood is that a new Independent Scotland can’t build its future on an old flawed currency which would not be able to help develop the Scottish economy, but on the contrary, would damage our economy. We must not make decisions about the economic future of our children and grandchildren on sentiment alone, we need to look carefully at the facts. If we do that, the fact tell us that we can’t afford to build our new Scottish economy on this weak base. So we must reject sterling as the basis for our currency in the new Scotland and look at a different model.
In the next article I will look at the difference between a ‘fractional-reserve’ currency and a ‘full-reserve’ currency. To help us decide what our new Scottish currency should look like.
If you do not agree with the main points of this article, send me an e-mail, tell me what you do not agree with, point out where you think I have got it wrong, and explain why you think this. I will answer each e-mail and we will publish the main ones, with their answer, in the Anderson Publications web-site at www.andersonpublications.co.uk So please do not hold back, express your views on this subject, or ask questions about the views I am expressing. If you feel inhibited because you think you don’t know all the answers, don’t worry, nobody knows all the answers some just pretend that they do.