Wednesday, 12 February 2014

England cannot stop an independent Scotland using Sterling

No more than the US Treasury can stop drug dealers over the world using the US dollar. Indeed it can be argued that the US Treasury policy de facto encourages the us of  the US dollar as the drug dealers currency of choice.

The Adam Smith institute have just published this penetrating view.

“An independent Scotland would not need England’s permission to continue using the pound sterling, and in fact would be better off using the pound without such permission.
“There is very little that an English government would actually be able to do to stop Scottish people from continuing to use the pound sterling if they wanted to.
“As the American economist George Selgin has pointed out, what the Prime Minister really means is that the Bank of England would not act as a guarantor for Scottish banks or the Scottish government. Lucky Scotland: the implied promise of a bailout from the European Central Bank is exactly what allowed Eurozone banks and governments to borrow cheaply and get themselves into a debt crisis.
“Scotland’s position would be closer to that of countries like Panama, Ecuador and El Salvador, which use the US Dollar without American “permission”, and, according to research by the Federal Reserve of Atlanta, consequentially have far more prudent and stable financial systems than if they were part of a formal currency union.
“An independent Scotland that used the pound as its base currency without the English government’s permission, with banks continuing to issue notes privately and private citizens free to choose any currency they wanted, would probably have a more stable financial system and economy than England itself.
“It’s up to Scots to decide whether they want independence, but the Chancellor’s announcement today should be seen as a feature, not a bug.”

That is the truth. The whole Scots cannot use the pound argument is a scare story got up by LibDemCon and A Darling. In fact it would be great for Scotland as pointed out.

Getting politicians involved with monetary policy and banking is always bad news. Right at the start of the financial crisis in 2008 when there was a  run on Northern Rock, a comparitively small bank, the wrong decision to nationalise the bank was made for  for political reasons. There were a lot of Labour MPs in the North East. Wim Buiter, the best economist ever on the MPC got it right on day one. When interviewed he simply said, "Let it go bust". NRock was not to big to fail. There was no systemic risk if it failed and it would have stopped the spread of banking malpractice in its tracks.  It would have been cathartic.

The disatrous RBS takeover of ABN Amro had already been waved through by  the useless FSA but a bankruptcy of N Rock would have prompted a faster emergence of this disaster and more effective immedite action.
The final political disaster was G Brown waiving through the Llyods takeover of HBOS against competion rules. Done to ensure Labour retained a crucial seat in the Glenrothes by-election. Many HBOS workers lived in Fife in Glenrothes.
So as the Adam Smith institute point out Scotland losing control of interest rate policy is not necessarily a bad thing. All its given to England is a huge London housing bubble which will soon produce massive social unrest.

Scotland has nothing to fear and cannot be stopped from continuing to use Sterling!

PS Cable is as always talking rubbish. I quote from today's Guardian,

However, McEwan played down comments from UK BusinessMinister Vince Cable suggesting it was inevitable the bank would relocate its headquarters from Edinburgh to London in the event of a "yes" vote.


Mike Bridgeman said...

Don't forget the elephant in the room.
This so called Independence will immediately be given away in an application to join the EU so losing any national control over a whole raft of competences.
What currency do you think the EU will insist this new applicant to the Federal European state will have to use?

Eric Edmond said...

Wee Eck will negotiate a deal along Swiss/Norway lines.

Mike Bridgeman said...

Wee Eck isn't calling the tune.
Oor Wullie would hae a better chance.

Eric Edmond said...

Wee Eck is a man to be reckoned with.

Mike Bridgeman said...

A better politician than anything we have here doon south I agree.
But the Scots are a canny race and the wool won't be pulled when it comes to what really matters.
Too many loose ends, too much to lose.
He's up against Merkel and Co. now.
They will want their pound of flesh.

Eric Edmond said...

LibLabCon are certainly now seen as bullying the poor little Jocks. Dr Frau Merkel wiil no doubt to the same to the UK when the time comes. A bad precedent for Cameron etc to set.

Mike Bridgeman said...

I'm not alone:

Eric Edmond said...

I know others share your views. Lillico is a bond trader. I watched Nicola Sturgeon today on the Daily Politics. Andrew Neil, a noted unionist, threw everything at her but got no answers he wanted. Game on as they say.