While not taking a position either for or against immediate implementation of an independent currency, I am obliged to note a rather obvious flaw in Richard Murphy’s criticism of ‘sterlingisation’ as a transitional option. His analysis appears to assume that the rUK government will invariably follow a path on monetary policy which is detrimental to Scotland’s economy. At the very least, he seems to anticipate that the rUK government will tend to act against, or in reckless disregard of, Scotland’s economic interests. How realistic is this?
Until such time as the economies of Scotland and rUK diverge significantly, it is likely that the same monetary policy will accommodate considerable difference in fiscal policy. One might wonder what is the point of rushing to set up an independent currency and all the accompanying institutions and apparatus if the monetary policy choices, being constrained by broadly the same internal and external circumstances, turn out to be identical.
One might well ask what monetary policy choices the rUK government might make which would be detrimental to Scotland but not to rUK. What scope might there be for decisions on interest rates, for example, which would harm Scotland’s economy but have no negative impact on the economy of rUK?
It is easy to see how this might come to be the case in the longer term. But there is no way of knowing in advance to what extent and at what pace the economies might diverge. That would depend very much on the fiscal and social policies followed in each and how these affect the economy as a whole. Initially, and in the short term, monetary policy is likely to be of little importance. And the governments of both nations will know well in advance that the point is approaching when differences in the shape and performance of their economies render a common monetary policy untenable.
That is why what actually matters is, not what currency arrangements Scotland has immediately upon independence being restored, but that the democratically elected government has the power to alter those arrangement as it sees fit, acting in Scotland’s interests.
So-called ‘sterlingisation’, or even full currency union, are both viable options. As, of course, is an independent currency. There is no single currency arrangement which is absolutely guaranteed to be the best arrangement in all circumstances and for all time. All options have pros and cons; political as well as economic; now and, potentially, in the future. What is absolutely crucial is that the government of independent Scotland should have the capacity to manage the nation’s currency arrangements according to the circumstances which prevail and the best information available about how those circumstances are going to change.
Even more crucial, perhaps, is that the people of Scotland have full confidence in our ability to manage our currency arrangements and every other aspect of our nation’s affairs. For, if we lack that confidence, how can we even contemplate independence?
It is essential, also, to realise that we are under no obligation to satisfy the British state that we have the ‘correct’ currency arrangements worked out in advance in order to ‘qualify’ for independence. If that were the case, than independence would never happen. If we afford the British state the authority to set tests that we must pass, they will never allow that Scotland has qualified.
Only one test matters. Only one test is relevant. Only one test is legitimate. And that is a test of the will of the sovereign people of Scotland.
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