As the year opened and the pace of the campaign on both sides of the independence debate really started to ramp up, there was a peculiar moment on February 13th that felt to me like it would be the point history would look back on as the beginning of the collapse of the Better Together campaign. That moment was the speech by the Chancellor of the Exchequer George Osbourne, delivered in Edinburgh. You can watch some of the speach on Youtube and the transcript is on GOV.uk.
This was the speech that lit the touch paper on what has become one of the cornerstones of the Better Together campaign: should Scotland vote for independence, Scots would no longer be able to use the pound. This terrifying situation should be avoided by voting No and staying in the UK.
This was an extraordinary speech in many ways. This quote stands out for me as being the core of the only positive message the pro-Union side has made:
Today Scotland is one of the most economically successful parts of the UK, with growth per head the same as the smaller independent European states the Scottish government would like Scotland to join… but with far more stability and less volatility than them, thanks to being part of the wider UK. ~ George Osbourne
The speech is filled with positive references to Scotland’s good economic condition, its faster growth and its faster recovery from the financial crisis. He even managed to keep any implication that he was responsible for these out of the text. From here, the positive message for the whole campaign could have and should have continued; about how that economic growth is linked to the growth across the country, about how the rest of the UK benefits from Scottish growth and how the sharing of assets like North Sea Oil helps underpin the financial stability of the whole country.
This was the positive economic case for the union that was sadly not to be.
Instead, George starkly issued a threat: Leave the UK and all your money will be taken away:
People need to know – that is not going to happen. Because sharing the pound is not in the interests of either the people of Scotland or the rest of the UK.
What he actually was ruling out was the rUK entering into a formal currency union with a newly Independent Scotland, effectively meaning that the asset that is the Bank of England (repository of both nations reserves and both nations debts) would be kept wholesale by the rUK.
The implied consequence of this, as heavily and repeatedly spun by Better Together, is that there would cease to be any money in your bank account, that employers would no longer have any money to pay salaries and that pension payments would cease to happen. There has been a steady stream of assertions like this:
“No-one knows what the currency will be but it won’t be the pound“ ~ Johann Lamont
Both of those things stuck in my craw a little. The first because it is fairly blatant pre-negotiation which, although not against the letter of the Edinburgh Agreement is most certainly against the spirit of it. The arguments why this stance would be adopted also rankles; why wouldn’t a pound still under-written partly by North Sea Oil revenue and historic national debt shared proportionately between the two countries or a single currency area be beneficial to everyone?
It frankly stinks of hardball politics and the worst outcome of it would simply be no formal currency union and therefore no historic national debt, which would be quite OK for Scotland and quite unnecesarily crappy for the rUK. That position on debt’s also a hardball one, but probably a fair one in the circumstances.
The second part is what has irked me continuously since that speech; the spinning of the threat to retain the BoE as having the consequence of all money mysteriously disappearing up the wazoo. It is easy to encourage “wont share the pound” becoming conflated with “pound dissapears entirely” or slightly more charitably, that the colour of the notes in your pocket will change to something new… isn’t that also scary? I mean, how well do you cope having to deal with foreign currency when you’re on holiday? It’ll be like that all the time in an independent Scotland!
It’s so obviously bollocks that it shouldn’t really even need said that it is bollocks. But please bear with me while I aim a few swift kicks at the dangling fruit.
The reason a change of currency seems scary is because it takes very slightly more than two weeks to get used to dealing with a new currency and most folk only every go on holiday and use another currency for about two weeks. I’ve been living abroad for a wee while now and I can tell you that the on-holiday-can’t-deal-with-this-foreign-money thing only goes on for about three weeks. After that you start to evaluate everything in terms of the new currency and you adapt to it perfectly easily. Of course you still work out the “equivalent in pounds” now and again, but the scary cognitive dissonance that we are being played with goes away within a month, I promise.
Remember decimilization? Some of you will, it was only in 1971 – a little before my time, but I do remember spending shillings as five pence pieces because they hadn’t been completely phased out yet. I’m sure the process was likely a bit disconcerting or even scary, but ultimately changing currency was not something to fear.
Any wholesale change would not happen immediately, we would simply continue to use the pound without a formal union. Such an arrangement is definite in all “Plan B”s for at least the short term and is a perfectly viable mid-term plan too. It’s less good than a formal currency for many reasons, but if we were in that position it might well also mean we have a blank slate defecit position, which would more than make up for it (see hardball negotiation, above). The money in your wallet will still be the pound even if the rUK politicians really are silly enough to make good on their threat.
The Difference between Money and Wealth
What should have been a civilised debate about economics has been replaced with quite ridiculous fear mongering and deepest still there is a fear that is also being played to that is such bollocks it deserves a special game of roshambo all to itself. Without the pound sterling, we would not have any money.
Money is a way of measuring and tracking wealth. It is not in and of itself wealth. It is valuable because of the service it provides; which is delivering a system of exchange for wealth. George Osbourne made a couple of valuable insights into this in that infamous February speech:
…the currency we use is about so much more than notes and coins. It’s about the value of our savings our power to purchase the everyday things we need and how we make the wheels of trade and commerce turn.
The value of the pound doesn’t lie in the paper and ink that’s used to print it. The value of the pound lies in the entire monetary system underpinning it. A system that includes the Bank of England and the tens of millions of UK taxpayers who stand behind that financial system.
Absolutely correct, George. The currency is not the wealth, it is just the yard stick by which it is measured. Scotland’s savings and Scotland’s tax payers are not going anywhere, the wealth that would underpin the Scottish economy will remain and whatever currecny we use will be spent in Scotland based on that security.
Now that we know that all money disappearing is bollocks and that in the worst case we would be in an informal currency union, without the services of the Bank of England, for the short to mid-term (just as the Republic of Ireland was for fifty years after their independence) let’s look at what the economic consequences of that would be, for therein lies the constructive debate we should have had about the topic.
We’d have to extablish our own central bank and monetary policy shaping unit. Establish an exchange rate mechanism of some form for our new currency (pinned to another currency or a basket of goods) start printing the new notes (already done in Scotland by Clydesday, BoS and RBoS) and… er… that’s it as far as I can tell. It’s an extra expense to establish and run but because the country is wealthy this is not likely to be unduly problematic.
Why do I keep repeating that the country is wealthy? Because the not-very-well veiled fear that is being peddled is that loss of the pound will mean a loss of wealth. Establishing a new currency and central bank will be an expense but, just like the Bank of England, it will also be a new asset and just like any other currency it will be valuable for the service it will provide. It wont cause a loss of wealth. The wealth comes from the skills we have, the work we do and the resources we have at our disposal which of course includes oil but the cornerstones of Scotland’s wealth are the people of Scotland. What currency represents that wealth, either old or new, is not something worth being afraid of.
Other posts in this series:
- Being Brave
- Why I Wish We Could Have Devo Max (and why we cant)
- Notes from an Even Smaller Island
- The Wealth of Nations