Sterling centre stage in debate on Scotland independence vote
Ireland’s handling of currency matters after Independence in 1928 could offer a path for Scotland
Bank of England and Royal Bank of Scotland banknotes: a yes vote in Scotalnd’s independence referendum could have major consequences for sterling
The Clydesdale Bank’s purple-hued £20 note bears the image of Robert the Bruce on its front and New Lanark, a 18th century village built by philanthropists for mill workers on its reverse.
It is one of two £20 notes the Clydesdale produces. Both are backed by the Bank of England and both are legal tender in the UK, although it is not always easy to spend them outside Scotland. They always attract second glances and often their production prompts refusal. There are few things that annoy Scots more, particularly when it happens in London.
Recently, the Mayor of London Boris Johnson issued a diktat to Transport for London that Scottish notes had to be accepted on the buses, following a series of refusals.
Currency touches nerves, as can be seen with Scotland’s increasingly bad-tempered debate about the currency it will use if voters support independence on September 18th.
Over the past 25 years, the Scottish National Party (SNP) has favoured the full gamut of options that are theoretically possible: an independent currency, the euro, or sterling.
Today, Scottish first minister Alex Salmond insists that an independent Scotland will “keep the pound” in a full currency union with the remaining parts of the UK.
His opponents among the Conservatives, Labour and Liberal Democrats say that Scotland will not be able to do this because the rest of the UK cannot, and will not, agree.
Last week, the Scottish National Party leader suffered a serious blow when he refused/was unable to declare a plan B in a debate with former Labour chancellor of the exchequer Alistair Darling.
The SNP leader had once condemned sterling as “a millstone” around Scotland’s neck that was responsible for much of its woes.
Then, he backed Scotland’s membership of the euro, but that dream faded in much the same way as did his ambition that Scotland would become part of Ireland and Iceland’s “arc of prosperity”.
Many in his party look to Scandinavia for inspiration on currency as they do on many other things, believing that Scotland should have its own currency. Salmond, however, is a gradualist about independence, knowing that that idea is too much of a leap into the unknown for many voters, which is why he favours a currency union.
The policy is not new. In fact, it is a decade old, but was little noticed then. However, Scots are facing the referendum on September 18th, so what was once theoretical is now real.
Scotland’s SNP finance minister, John Swinney, says that a formal monetary union with the rest of the UK, with the Bank of England operating as the central bank, is “the core proposition for us”.
The Bank of England is, he said then, “the Bank of the whole United Kingdom”, adding that the Scottish government wanted it to continue as the lender of last resort to [Scottish] financial institutions.
Salmond’s difficulty is clear, if hard to resolve. An independent Scotland can use sterling, if it chooses, but it cannot do so as part of a currency union unless the rest of the UK agrees.
The SNP leader has always had an à la carte attitude to currency union, believing that the Bank of England would not have oversight of a Scottish budget, for example.