An independent Scotland would not need to share currency with the rest of the United Kingdom

Alex Salmond could do worse than look to Ireland in the 1920s


Strong statements are often exercises in marking out a forward position behind which some manoeuvring can take place. But yesterday it was no bluff when it was stated that rest of the United Kingdom wouldn’t enter into a currency union with an independent Scotland. The three warring political parties stopped their incessant combat for just long enough to turn their guns on the Scottish National Party, led by Alex Salmond. They delivered a merciless broadside.

Floundering, Scottish Deputy First Minister, Nicola Sturgeon gasped that “voters in Scotland would not be fooled by “campaign rhetoric” that aimed to “frighten and intimidate” people. Later I will describe how the way that Ireland handled the same problem when it broke away from the United Kingdom in 1922 might provide a useful model for an independent Scotland.

But first examine the actual words used yesterday. The Chancellor of the Exchequer, George Osborne, said: “I could not as Chancellor recommend that we could share the pound with an independent Scotland.” There is no wriggle room there. Then the Liberal Democrat Danny Alexander, Chief Secretary to the Treasury, and himself a Scot, added: “I couldn't recommend a currency union to the people of Scotland and my party couldn't agree to such a proposition for the rest of the UK.” And Ed Balls, the shadow Chancellor, added: “It would be bad for Scotland. It would place an unacceptable burden on the UK taxpayer. It would repeat the mistakes of the euro area …it won't happen, I wouldn't recommend it. Scotland will not keep the pound if Scotland chooses independence.”

As if this wasn’t enough, the Treasury disclosed its recommendation to the Chancellor. “On the basis of the scale of the challenges, and the Scottish Government’s proposals for addressing them, HM Treasury would advise the UK Government against entering into a currency union.”

It is not often that Treasury advice is published in this way. It tells us that a successor to Mr. Osborne would have to act against Treasury advice if he or she were to take a different view. Then equally unusually, Nick MacPherson, the most senior official, also made his opinion known. In a note to the Chancellor, he wrote: “I would advise you against entering into a currency union with an independent Scotland. There is no evidence that adequate proposals or policy changes to enable the formation of a currency union could be devised, agreed and implemented by both governments in the foreseeable future”.

So what should an independent Scotland do if it cannot enter into a currency union with the rest of the UK? I assume that it would not wish to join the eurozone with the progressive loss of sovereignty that would be the result.

The best guide is what Ireland did when it became independent in 1922. The similarities with Scotland are striking. Like Scotland today, most of the Irish banks had been issuing bank notes. Today seven Scottish banks have the authority of HM Treasury to issue sterling banknotes as currency. In 1922 the Irish banks continued issuing what were, strictly speaking, British currency notes backed by cash held in London.

Four years later, the Irish government put into circulation what were known as Irish token coins. This was a modest first step. This was followed in 1927 by the establishment of standing Currency Commission that administered the introduction of Irish legal tender currency notes swapped for sterling.

The Irish pound had been born but it was long to maintain a close link the pound sterling. The Currency Commission was replaced by a central bank in 1943 that operated on a modest scale until the 1970s. Then the link with sterling began to be questioned following the ending of most exchange controls. The pound sterling became volatile as oil prices tripled and British inflation began to climb. So the Irish Government took its chance with the creation of the European Monetary System in 1979 and linked the Irish pound with Continental currencies. Later Ireland joined the European Community (as it then was) and eventually adopted the euro.

For the Scottish National Party, there are two points to note in this history. First, the exercise was extremely pragmatic. The Irish started with what they had already got - banks that issued currency notes - and, step by unhurried step, they created their own currency before joining the euro. And second, as matters evolved at their cautious pace, there were no disasters, no crises and no drama. Isn’t that what a new nation would want?

An object lesson in the meaning of the word ‘object’

Speaking of the floods, David Cameron has been insisting, “Money is no object in this relief effort”. “Money is no object” is a familiar phrase but I have begun to think what a strange construction it is.

Language is like a fossil bed. On the surface are words that work with simple precision. “The boy kicks the football” - there is no problem there. But money “no object”? As we dig down, we find words whose meaning must have altered through history. Object seems to be such a word. For today “object” means anything that is visible or tangible and is relatively stable in form. Or a thing, person, or matter to which thought or action is directed: an object of medical investigation. The fossil that has come to the surface is the sense in which the Prime Minister used it, “object” meaning obstacle.

Now as we dig down we first find the Medieval Latin word, objectum, which has the meaning “thing put before” the mind or sight, and here one can see that the “thing put before” could be an obstacle. And in turn objectum is the past participle of obicere, “to present, oppose, cast in the way of”. Finally at the deepest level we find the original Latin - ob meaning against and iacere, to throw. Come to think of it, that is what Mr. Cameron really meant - he’ll throw money against the problems created by the floods.

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