In my article last week about currency we considered the prospect of an independent Scotland retaining sterling and found this unsatisfactory. This week therefore we acknowledge that a growing number of people, including the SNP Government are now considering an Independent Scotland using its own currency.
It is important therefore to now ask, what type of currency should the Scottish currency be? No money or currency has no intrinsic value. In the age of fiat currencies it is merely a slip of fancy paper. Its economic value rests entirely on its use as a medium of exchange to ‘oil the wheels’ of the real economy. So in selecting a currency for a new independent Scotland the first priority must be to select a currency which will be the most effective in performing this task.
We have all witnessed how a country’s economy can be devastated by trying to adjust the real economy to the requirements of the currency, just by observing what has happened in Greece. So the lesson is clear, the currency, which we must remember has ‘no’ economic value, must be made to serve the ‘real’ Scottish economy not the other way round as in Greece.
There are two types of fiat currency which we could use: A fractional-reserve currency such as sterling, the dollar, or the Euro. This is a currency where only a fraction of the currency issued is held in reserve; or a full-reserve currency such as Mutual Building Societies used to be, which are strictly regulated to ensure that they lend only the money that they have from depositors and retain 100% reserves.
A fractional reserve currency and the banking system which supports it is very popular with the extremely wealthy financial elite, and of course with the media, which they own, so it gets a good press. However it is founded on a fraud, and like all frauds it has been getting progressively worse over time and has no longterm viability. The fraud is a simple one, it has a long history, and it is widely and commonly used, but it remains a fraud and it is increasingly losing its ability to survive.
The fraud sits at the very heart of the system. A fractional reserve bank lends out more money than it gets in from depositors. Now this fraud makes those who own the banks and those who run the banks wealthy, but it does not help the real economy or the general wealth of the country, on the contrary it undermines it.
It is because fractional-reserve banks have been creating ‘phantom’ money that they have created the bank crisis of 2007/8, and since the real causes of that problem has not been addressed it will happen again on a larger scale. These banks were rescued by tax payer’s money and escaped bankruptcy by Government’s refusing to apply the law to their fraud.
This is what Yalman Onaran, a Turkish American economist has described as Zombie Banks (Banks which are legally dead, but kept alive by tax payers subsidy) creating phantom money which is crippling the real economy in the West.
In the UK all the major banks are Zombie banks by this definition, and the currency, sterling is controlled by them, not by the British Government, which has no control over monetary policy or money supply. A full-reserve currency on the other hand is a currency where the Government retains control of the monetary system and money supply. The banking system is regulated in much the same way as Mutual Building Societies used to be.
This means that the money lent by banks or created by the Government, is balanced with the actual deposits made into the banks and by real national assets to balance Government money creation.
In the UK today your savings are not valued. There is even stupid talk about the banks charging you for leaving your money with them. This stupidity arises from the fact that they do not need your deposits because they are creating ‘phantom’ money of their own.
If Scotland had its own full-reserve pound which was controlled by a publicly owned Scottish Central Bank, and operated to give maximise support to the Scottish economy then such a banking system would want and pay reasonable interest for your savings, because the banks own lending and interest earning, would depend on such deposits
We will look further into this subject next week, but meantime get in touch and give us your views on this.