It follows an independent Scotland on Sunday opinion poll which shows momentum with independence campaigners with a 5% increase in Yes support putting Yes Scotland in striking distance of victory.
Mark Carney’s position is politically independent, so his focus is not the politicking but rather on ensuring the strength of the economy across all areas that use the pound sterling.
These latest in a series of preparatory technical discussions signal an important step in ensuring sensible monetary structures in the common interests of business north and south of the border after independence. They also demonstrate that the continuation of the sterling union is being taken seriously by those who understand the technical details. So much for a “policy dead in the water” as suggested recently by No campaigners.
In his speech Mr Carney stated that the Central Bank would implement a currency union, following negotiations between Scotland and the rest of the UK.
He also set out the benefits of a currency union including eliminating transaction costs, promoting investment & encouraging integration. And he highlighted some of the reasons why a currency union would suit the social and economic landscape of Britain, not least the lack of a language barrier to the movement of labour supply. Technical challenges highlighted in Mr Carney’s speech – such as fiscal and banking structures – were recognised by both the Scottish Government’s independence White Paper and the independent Fiscal Commission Working Group. In this respect, it was interesting that Mr Carney specifically mentioned the importance in his education of Sir James A Mirrlees, one of the members of Scotland’s Fiscal Commission Working Group, an architect of the currency union proposal and a nobel prize winner.
There was nothing in what Mr Carney had to say about the sharing of fiscal structures which suggested any of the policies like investing capital investment, reducing corporation tax, scrapping air passenger duty and an extension of free childcare to grow Scotland’s economy would not be possible within a currency union. In fact, much of the points he highlighted involve the kinds of sensible fiscal parameters and structures a financially prudent independent country would want, especially one that recognises the benefits of sharing services in a globalising world. Moreover, all western countries including the UK must learn the lessons of the credit crisis and over borrowing. Prudent fiscal parameters will surely apply to both Scotland and the rest of the UK in future and a Scottish negotiating team should insist on them.
Mr Carney went on to note the strength of Scotland’s economy relative to the UK, the fact that the UK’s recent albeit modest economic recovery began in Scotland. No doubt as a result of the Scottish Government’s decision to invest more capital in infrastructure and the associated jobs and growth. If only Scotland had the powers to do even more when the recession hit, perhaps the impact could have been even shorter and shallower than it was in comparison to the UK as a whole.
Future technical discussions will take place to develop the currency union as Scotland moves towards becoming an independent country. As Business for Scotland’s Ivan McKee has pointed out, market pressure will grow on the UK Government to support this plan – just as pressure forced it to clarify arrangements on UK debt.
10 reasons why the currency union is to Scotland’s and the rest of the UK’s mutual economic benefit.
1) The rest of the UK relies on open trade with Scotland
Scotland is the rest of the UK’s most important and second largest trading market. Billions of pounds of goods arrive from England alone every month creating / safeguarding hundreds of thousands of jobs in the rest of the UK that rely upon having access to the Scottish market. For Westminster to enforce a currency barrier would go against rUK’s economic interests.
2) Scotland’s balance of payments ensures the stability of the pound sterling
Scotland is a key market for exports within the UK. The trading surplus of oil and gas, whisky and manufacturing provide stability for the UK balance of payments. This maintains the worth of the currency in international markets. rUK requires Scotland’s membership of sterling to protect the currency.
3) Economic experts support a currency union
The independent Fiscal Commission Working Group of globally renowned economists produced a considerable report into the macroeconomics of an independent Scotland conclusively supporting a currency union.
4) The financial markets and institutions support a currency union
Oliver Harvey, strategist for Deutsche Bank, described a Scotland-rUK Sterling arrangement as an “optimal currency area”
Valentin Marinov, the head of European Group-of-10 currency strategy at Citigroup added: “the potential introduction of a currency union need not affect significantly trade and other flows.”
5) The Treasury followed market pressure on debt and they will do the same on currency
The UK Treasury recently confirmed that they will secure the repayment of all the UK’s current debts. This was as a result of queries from the financial markets. Similarly, there will be calls for the UK Government to make quickly clarify the currency position if Scotland becomes independent. All the common sense economic evidence favours a currency union.
6) Mervyn King: UK Treasury approach would be “entirely different” following Yes vote.
Former Bank of England Governor Mervyn King has said that the UK Treasury approach to agreeing a currency union will be entirely different following independence. As it stands, Westminster politicians are engaging in political posturing during the referendum debate. After the referendum is finished economic common sense will prevail. The former Governor of the UK’s Central Bank is well placed to understand this.
7) Professor Hughes-Hallet dismissed Westminster politicians for “political posturing”
In a recent interview with BBC Scotland, Professor Andrew Hughes-Hallett, an expert in economics and public policy at George Mason University in the US and a Professor at the University of St. Andrew’s, supported the currency union proposal.
He also said that: “The question is the running of it [the currency union], not the existence of it.” Westminster politicians, in his view, are engaging in “political posturing” while ignoring the economic evidence.
8) Westminster politicians will not rule out a currency union because it makes economic sense
Although Westminster politicians are negative and dismissive when it comes to cooperation after independence, all key representatives will not rule out a currency union. Shadow Chancellor Ed Balls recently said he would hold discussions on the issue. Chancellor George Osborne knows that after a Yes vote the situation would change rapidly and he would have to act in the best interests of business and trade in the rest of the UK which means supporting a currency union. And now we know all the technical work will be complete.
Edit: George Osborne’s attempt to claim Scotland couldn’t use the pound, quickly backfired when another UK minister briefed the Guardian by saying “Of course there will be a currency union”.
9) The Governor of the UK’s Central Bank is already discussing the technicalities
Mark Carney’s presentation in Edinburgh was a key step towards a currency union after independence. It laid out the benefits of maintaining a currency union and opened up further dialogue between the Scottish Government, the Fiscal Commission Working Group and the Central Bank. The challenges that were set out by the Governor will be taken seriously – and there is a substantial length of time until March 2016 (when Scotland would become independent) to establish working arrangements and institutions to address them.
10) Even Alistair Darling says that a currency union is “logical” & “desirable”
Alistair Darling, leading the No Campaign, understands that the politics before the referendum will be overtaken by the economic common sense that follows it.
On Newsnight Scotland he said “Of course it would be desirable to have a currency union…If you have independence or separation, of course the currency union is logical.”
Governor Mark Carney’s intervention should be welcomed. It sets out the direction of travel towards agreeing the technical aspects of a currency union after independence.
That the Governor of the UK’s Central Bank has taken a steady and pragmatic approach to this issue demonstrates that the economic case for both independence and a currency union remains serious. It’s the economic interests – both north and south – that will ensure the success of a currency union after independence.