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  By George Kerevan
WHO made the following positive statements about the potential of a currency union between an independent Scotland and rUK?

“…it eliminates the transactions costs associated with using, and switching between, different currencies…Sharing a currency can promote investment by reducing uncertainty about currency movements and giving businesses access to deeper, more liquid financial markets… Sharing a currency can also help to increase the mobility of labour and capital, raise trade in goods and services, and improve the flow of technology and ideas.”

Answer: Mark Carney, Governor of the Bank of England.  Speaking in Edinburgh on 29 January – not that you would have guessed this was his position if you read the next morning’s London press headlines.

For the London media had ventured north of the M4 for 24 hours in the hope that Carney would somehow denounce the idea of a common sterling union being proposed by the Scottish Government.  Unfortunately for them, Carney made very clear at the outset of his speech that it “does not pass judgement on the relative merits of the different currency options for an independent Scotland, but instead draws attention to the key issues”.  Note: “does not pass judgement”.

Instead, Carney – as the person who would have to rub such a currency union – confined himself to laying out the pros and cons, before stating unequivocally that:

“Any arrangement to retain sterling in an independent Scotland would need to be negotiated between the Westminster and Scottish Parliaments.  The Bank of England would implement whatever monetary arrangements were put in place”.

However the media had come looking for a negative story and were determined to find one.   No surprise then that Glenn Campbell of the BBC immediately asked:
“Could you as Governor make a currency union between an independent Scotland and the rest of the UK work?”

Of course the Governor had already said it was his job to implement whatever the Scottish and rUK governments decided.  Patiently he repeated his position to Campbell: “The Bank of England, which is an impartial technocratic institution, would implement whatever monetary arrangements were decided to the best of our ability…”

Game, set and match you might say.  But not for London’s media finest.  Enter next Richard Edgar of ITV News who suggested that Carney’s speech indicated “that agreeing [a currency union] would be very difficult.  Can you briefly explain why?”

But Carney was having none of this.  He told Edgar: “I didn’t mean to suggest that, I merely meant to underscore what the core issues were and then I would suggest it is the responsibility of the parliaments to outline how they would address those issues.”

In fact Carney had gone to great lengths in his speech to explain the ground rules for a successful currency union.  Top of the list, it requires a great deal of integration (in productivity, trade, capital and labour flows) of the economies of the member states because “similar economies won’t suffer from a ‘one size fits all’ monetary policy”.   But he immediately went on to say that “Scotland and the rest of the UK are highly integrated”.

But what about an independent Scotland with North Sea oil? Would the difference in industrial structures undermine the proposed sterling area (as I was asked by Gordon Brewer on BBC Newsnight)? Carney had an answer for this too, specifically pointing to the fact that the internal Canadian monetary union (which he used to manage) “works well” despite having substantially larger industrial variations between provinces than even the US economy.
What Carney did point out was that a common currency zone would need common institutions to run it and that meant pooling a degree of national sovereignty.  But this is true of many aspects of international cooperation.  The point is you need to have sovereignty in order to pool it and the Scottish people lack sovereignty entirely.

The media pack tried another tack.  Faisal Islam of Channel 4 News asked: “Is it the case that you feel that an independent Scotland would be too small to host giant universal banks like RBS?”

Faisal has obviously never heard of Switzerland or Luxembourg, where the banks are even bigger relative to the national economy, and seem to do very well.  But Carney was patient as ever, replying: “That’s clearly not what we said – or I said – in the speech.”

Instead, Carney argued “whether Scotland, the United Kingdom, Europe, the US, Canada – we have to end too big to fail and we have to finish these various [banking] reforms that are being worked through…”

None of the hacks seemed to have noticed a reference at the start of Carney’s speech that paid tribute to Scottish economists.  He noted “the
pioneering work of Scottish economists from Adam Smith to Sir James Mirrlees”.

The mention of Mirrlees is very significant, if not a coded message.  Mirrlees (who hails from Kirkcudbright) won the Nobel Prize for economics in 1996.  But he was also Carney’s supervisor at Oxford while Carney was doing his PhD thesis.  The two remain in touch.  This is interesting as Mirrlees is a member of the Scottish Government’s Fiscal Commission, which drew up the plan for a currency union.

It is obvious from the questions being asked by some of the London journalists at Carney’s Edinburgh press conference that they had heard of neither James Mirrlees nor the Fiscal Commission (far less read the latter’s reports).  However, every single issue and point raised by Carney in his speech had already been discussed and dealt with by the Fiscal Commission.

Some of the journalists tried to focus the discussion on the exact details of how a fiscal pact would operate between Scotland and rUK in any sterling zone.  The subtext is that the No campaign is trying to claim Scotland will have to give up a lot of its independence to the Bank of England in order to secure a common pound.  In particular, it is alleged it would have to give up real control over fiscal policy (taxes and public spending) as well as over interest rates.

This line of argument is entirely bogus and has already been dealt with by the Fiscal Commission.   The Commission’s First Report (p94) sets out how things would work:

“Limitations on borrowing and deficits are typically at the composite level, and still allow for flexibilities in the design of the underlying tax system and a range of specific policies suitable for each Member State.   Indeed, such flexibility is vital to the success of a monetary union as it provides the autonomy and policy levers to target country specific differences (advantages and weaknesses) which cannot be tackled with a common monetary policy.  This should help ensure alignment in terms of economic performance.”

Translated, that means member countries are banned from making unsustainable borrowing on the level Gordon Brown introduced when he was Chancellor (subsequently wrecking the finances of the entire UK).  But inside this sensible spending envelope, countries are free to tailor spending patterns and individual tax rates as suits them.   Indeed, this is a necessity in order to promote economic efficiency.

We should be clear that there is room for a degree of argument between independent Scotland and the rUK Treasury over how to interpret and police such fiscal rules.  The rUK Treasury might start demanding a veto over the detailed breakdown of the Scottish budget.  However, that is not necessary in order to run a sterling union or guarantee reasonable fiscal sustainability.  And it must be reiterated, the whole point about pooling sovereignty to create a common currency zone is that rUK would have to abide by exactly the same rules as Scotland.

Overall, Carney’s speech was very much in line with the thinking laid out in the Fiscal Commission reports.  And judging from the way Carney dealt with the London media, he is someone an independent Scotland can do business with.  I can’t say the same thing for the London hacks.


2014-02-03 08:53

Another good article from George Kerevan which debunks most of the spurious points raised by the unionist-leaning media hacks, all the way from London town.

With the benefit of hindsight, it was a great pity that the government of the day did not have just a little more foresight when nationalising the Bank of England in 1946 and giving it it’s proper title as The Central Bank of Great Britain (or United Kingdom).

This would have removed the doubt which exists in the minds of many people that this bank somehow belongs to England alone and that Scotland is merely “allowed” to use the English currency.
2014-02-03 09:02

Kudos to Carney as he quietly flattened the Media leading questions. Maybe forming the financial side of a new country excites him. Now that WOULD be a thought!
2014-02-03 09:15

How many London hacks were actually in the room? How many just stayed in London for the Downing street briefing whose language and tenor they reflected on their front pages? How many of them read Carney’s text. How many just exercised their ill-disguised prejudice to simply “diss” the concept off hand. How many of these hacks know anything about Scotland and what drives the desire for restored national sovereignty beyond a lampooning, visceral dislike of the skill of the First Minister?
2014-02-03 09:44

Clear, interesting and easily understandable analysis of “Carneygate”. His connection with Sir James Mirrlees is what makes this very doable and supports Scotland’s case that “this will happen”. Very good analysis!
2014-02-03 10:15

Only very slightly O/T, WoS have info on the FT’s article today Independence debate: Yes, Scotland? by Mure Dickie and Keith Fray with the sub-titile: Even pro-unionists accept that the country has all the ingredients to be a viable nation state. The story is short and to the point but has some superb graphics showing how much better off Scotland would be outwith the UK. For anyone with an FT account, the article is…/…

It’s behind the FT paywall and does not display properly when sent to so I have done a Chrome whole page save and sent the resulting zip file to this site’s contact email.

The WoS article is rightly called Unleashing a firestorm – see…/
2014-02-03 10:19

I think the main issue for the Westminster establishment with respect to currency union is that they will have to consult others before embarking on any major borrowing or money printing exercises.
Since Westminster regards itself as sovereign in these matters,it cannot understand the concept of pooling.
This,to some extent sums up most of the current attitude to the EU.
They are just going to have to get real following our independence and realise that in the real world,people do share things.
2014-02-03 10:20

First class dissection Mr Kerevan.

At one stage I was beginning to wonder if the assembled UK media had been monitoring a different speech to the rest of us.
2014-02-03 10:48

More O/T is the SG finding £15m in the budget they want to allocate to bedroom tax mitigation but cannot under DWP rules. The DFM excellent on this on GMS @08:15, but I missed Gray Iain’s withering ripostes which were due @08:30. See also…/… for the glencambly one’s takes on it.

This and the FT revelations could make FMQs fun, especially as someone on WoS pointed out if La Mont tries getting the numbers into her head.
2014-02-03 11:58

Good insightful and incisive article as usual by George Kerevan. I myself could never lay claim to being an economist, but as a mere layman in these matters, I was impressed by Mr.Carney’s speech with regard to its reasonably plain language, and his later rebuttal and correction of the determined attempts by the mainly London media hacks to get him to rubbish the Scottish Government’s case for a currency union.

No doubt Ms.Lamont at FMQs will dismiss currency union as yet another “wee thing” in the list of the important items achievable in an independent Scotland.
2014-02-03 12:01

A £ coin is 3.15mm thick.
A hundred £ coins would stack 315mm high, or 0.315m, just over a foot.
A thousand £ coins would stack 3.15m high. 10ft.

A million, 1k x 1k £ coins would stack 3,150m high or 3.15KM, or 1.96miles

A billion, that is to say 100 millions, not 1000, would stack 315,000m high, or 315Km.

A trillion, if you take that as 100 billions, would therefore stack 31,500Km high.

1.4 trillion coins would stack 44,100Km or 27,400 miles high. One tenth of the way to the moon give or take.

If this was a surplus, (see Norway), we could stack up the coins and the UK would have a space program.

It isn’t. It’s a debt, we have a share to bear, but it seems we want a currency union with Sterling. Now I’m not 100% sure just how good an idea that actually is – long term anyway.

For one thing it is obviously vital that we start making thinner pound coins – or go back to using notes.
2014-02-03 12:17

We don’t need nuclear submarines for defence, the UK needs them to check its bank balance.

call me dave
2014-02-03 16:37

BIG news.

Man charged with threatening to assassinate The First Minister. Was on a tweet we saw on a thread yesterday on WoS.
From The Suburbs
2014-02-03 16:56

call me dave.

I’m sure our media will be demanding that David Cameron calls off his attack dogs.

On the subject of ignorant London journalists perhaps this article should be forwarded to Dominic Lawson whose appalling article in yesterday’s Sunday Times is headed “Perhaps it’s time to start minting some bawbees, Mr Salmond”
2014-02-03 17:05

Given that for several days prior to Carney’s speech The BBC, the Scottish and Metropolitan media had been shouting from the rooftops that Carney was going to put the boot into a shared currency I suppose that to save face having sowed the seeds they had to continue with that line irrespective of what he actually said.
2014-02-03 17:19

Excellent summation by George Kerevan on Mr Carney’s speech and the one-sided questioning by the unionist media.
Also,thank you Barbazenzero for the FT link.
2014-02-03 18:30

[quote “Barbazenzero” See BBC website “for the glencambly one’s takes on it.” I clicked on the link and have just managed to stop laughing – almost. The article has a picture of a bed in it, just in case the great unwashed don’t know what that is, presumably! On topic, great article, simple and clear enough to be able to remember and explain to someone who doesn’t think a currency union can work. Also can be used to debunk more No myths.
2014-02-03 20:17

If it was not serious it would be laughable,is this another union dividend??.

QUESTIONS have been raised over the lack of maritime surveillance in the UK after Defence Secretary Philip Hammond admitted that his department relied on Twitter for information about a Russian warship which moored in Scottish waters over the christmas period.
2014-02-03 21:01

We should prepare for the BT attempts at talking up Devo-whatever at their spring conferences. The question they have to address is how does fiscal independence, at one end of the devo spectrum cope with a currency union when we are told FFA through independence would be inherently unstable. It doesn’t make sense.
2014-02-05 19:40

I regret that, much as I’m in favour of independence, I remain worried about the shared pound, if only because I do not trust Perfidious Albion one inch. I think that our current position on the pound is not inherently strong and while it may well be desirable, I feel that if the referendum is lost it may well be this question that sinks it. I would very much prefer it if we came up with a Plan B, eg formation of a Central Scottish Bank and our own currency, possibly pegged to the pound or the euro. Putting all our eggs into one basket, particularly when that basket is going to have to rely to some extent on an embittered Westminster, is not hugely attractive and at present there is an impression that if Westminster says no to a shared pound, we have nothing to fall back on.


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