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A Scottish Currency and Its Debt

If people ever wondered about the necessity of a Scottish currency, then Corona-times should settle the question in their minds. The European Union – with one currency shared amongst many members – has had a difficult, almost torturous time, dealing with the economics of the situation. The Eurozone’s bailout fund, the European Stability Mechanism, took months of negotiation, does not deliver the extra monies that is likely to be required and will add to the debt burden of the already groaning economies of the Mediterranean. Indeed, Italy might collapse under the strain.

However, the countries with their own currency – including the UK – have been nimble and fleet of foot. Despite misgivings regarding the Westminster government and who is spending it, what the money is spent on, and how the debt is being (needlessly) paid back, there is little argument that, when the tap is turned on, the money can flow with little concern about when it has to be turned off again. No one had to approach other governments and institutional financiers to ask for a certain amount and then discover it was not enough, forcing repeated returns to the table with the begging bowl. More money was simply issued on a month-by-month basis.

A sovereign currency gives the state this sort of power. It is usually revealed in times of crisis, but it always exists and can be used when times are good to develop the economy. Good times, bad times, a Scottish currency is a necessity for an independent country that wishes to be genuinely independent and marshal the power of its natural resources, capital and labour to the improvement of the lives of its people. Yet the argument for Scotland’s currency is underpinned by two central points.

The first of these is that Scotland should issue the currency itself. This could be done directly through government, but nowadays it is more often through a central bank. There are reasons for this beyond the scope of this blog, but it does not matter a great deal whether the money comes from the bank or Treasury, if they are both following government policy.

The second point is crucial and a mainstay of international finance, although it seems to elude many journalists and commentators. Any debt that a newly-independent country takes on as a ‘legacy’ must be denominated in its own currency with the self-same currency being accepted as payment for the debt. Scotland’s prosperous future depends on this being understood and implemented. If the government of a newly-independent Scotland does not recognise this fact, then we Scots shall forever be like the cursed Greek King Tantalus, punished for his wickedness by having to live by an apple tree on a lake shore: the tree’s fruit would recede when he went to pluck it and the waters of the loch(!) withdrew as he tried to quench his thirst. Scotland will be continually attempting to reduce its debt but the figure will forever be out of reach as interests, controlled by others, and austerity, imposed by others, force an eternal famine of Scottish finances.

Still, the point is not to avoid debt entirely. In the wake of the massive spending for COVID-19 relief, it seems unlikely that Scotland could refuse its proportion of the debt accrued. There was, and probably still is, a case for the hidden transfer of Scottish wealth away from Scotland. Nonetheless, the huge figures involved in furlough and other subsidies – to everyone, not just Scots – is £500 billion (more debt than the UK had in 2005) This makes the argument for leaving the Union without sharing the debt harder to support, and it will certainly make the argument less acceptable to the people of England, Wales and Northern Ireland. Politically, now, walking away from the Union debt-free is stepping into a firestorm, which may make UK politicians decidedly more aggressive and hard-edged.To make independence as smooth a transition as possible – and I think most Scots would want that – Scotland will have to accept a certain proportion of rUK’s debt. We should not be overgenerous or benign or too keen to settle just to get the divorce, but, for the sake of sovereignty and good relations, we will probably have to accept some.

However, under no circumstances should we allow that debt to be denominated in pound Sterling entailing the requirement to make payments in Sterling. This would open the door to debt-slavery for our nation. This point and the contention over it will be the most important fight a Scottish government engages in. It will tie or release the hands of all Scottish governments into the future, and it will be a harder position to extract from further down the line. This means we must ensure that any debt is payable in a Scottish currency. A debt in a Scottish currency allows us to take control of the debt. We can pay it down by selling unlimited resources like electricity and water. Interest rate rises need not affect our ability to pay, nor would it affect our ability to spend on the sort of things we would priorities as useful to our society.

It was the 18 th Century poet, Johann Wolfgang von Goethe, who, in his great poem Faust, created a vision of money as a magical process that could bring prosperity to millions. It can be. But if Scotland allows the Sterling denomination of debt to be hung like a halter around our necks, we’ll be left with lead, not gold.

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