The oddest thing about the great Scottish currency is why so many in the pro-independence camp actually want to retain the British pound. It is true, whatever the politicians say, that a currency union between Scotland and England could theoretically work – but only at vast cost and with permanent instability and, ironically, loss of Scottish sovereignty.
As the protracted traumas of the eurozone demonstrate all too graphically, without a binding fiscal and banking union– and, with it, large transfer payments between the participants – such an arrangement is forever unstable. In the single currency area, the Greeks and others resent being bullied by their paymaster Germany, an economy so large and successful that it inevitably dominates decision-making. With the English economy approximately 10 times larger than the Scottish one, the degree of influence that the Bank of England and the English Treasury would exert over Scottish economic policy would be similarly suffocating, and not necessarily in the Scottish interest – surely the very opposite of what free-minded Scots such as Alex Salmond seek.
At least now in the UK the Scottish send representatives to Westminster and, through them, hold UK ministers and the Bank of England to account. They also have a Secretary of State for Scotland in the Cabinet, and Scottish accents (albeit sometimes representing English constituencies) heard in government. That would all disappear.
Quite apart from that, the Scottish financial sector is simply too large, and therefore too risky, to admit into any currency union, even if a fiscal compact could be settled. The Scots would be free to use sterling or the euro or the US dollar – or the Vietnamese dong, for that matter – as a means of exchange and store of value, but they would have no influence over London’s interest rate policy or any right to use sterling assets to protect their banking sector if it ran into renewed problems.
The UK as a whole had barely sufficient money to rescue the Bank of Scotland and RBS as British institutions; as foreign, Scottish ones the English taxpayer would have no obligations to them. The English authorities might voluntarily lend Scotland sterling, but it would be a voluntary arrangement based on the need to protect a vital trading partner.
Fundamentally, if the English don’t want to let Scotland into sterling, whether rational or not, there is nothing that Edinburgh can do about it: the Scots can throw the Royal Navy’s nuclear subs out of Faslane if they wish – there are plenty of needy English ports happy to take them.
If all the SNP rhetoric about a proud new nation being able to chart its own course is to mean anything, it must mean the right to run its own economy policy and create a sound currency. Other smaller European nations have done so – Switzerland and Norway spring to mind. Then, again, if the Scots want to be full-hearted Europeans, as the SNP claims, then they could revert to their old policy of joining the euro – where they would have a seat on the European Central Bank’s decision-making committees and a voice in the EU Council of Ministers. Or they could build the Scottish pound as a currency as hard as Aberdonian granite. Sterling is simply a poor choice for Scotland. There are better options for all concerned.