‘Loyalties are no longer the currency of the world. The currency of the world these days is…currency,’ said the bad British captain in one film of The Pirates of the Caribbean franchise.
Currencies are power. They may function as IOUs for goods, services or resources as many economists will state and allow a society to evolve beyond bartering to a complex economy which, in our present times, spans the globe. However, in my reading, most economists blindly or wilfully ignore the most potent fact about currency. It is the power to call on the resources and abilities of a nation, to organise society as you desire, to reward or punish, and to deliver social justice or embed inequality and poverty. Whoever has that power of currency determines outcomes in society.
Most people think about currency as they think about their own money. We receive money for work done, money invested or through entitlements. The latter two based on the work done by other people and re-directed through profit-taking or taxation, people assume. We cannot have money unless work somewhere has been paid. So goes the general way of thinking.
The exception being credit. In this case, money is given on the expectation that future work will be undertaken to pay for the money being spent in the present, or some asset, like a house or car, will be used to redeem the credit. Few people have been lucky enough to be given a credit card that never requires repayment.
Yet, a credit card that is nearly infinite is close to situation that governments who have their own currency are in. They do not have to work to earn that currency. Governments can issue their own money backed by labour and resources of their country to a massive extent and it is not clear whether where the limit is to do this. (The economists are still debating; we can expect an answer within the next two hundred years.) Although, we know one thing, the limit is very large.
When the UK government first used Quantitative Easing during the financial crisis that started in 2008, it issued £400 billion pounds. This money will never be repaid and will sit on the books of the Bank of England, forever. It now stands at 40% of £1.6 trillion. How is this possible? It is simply because the BoE, as an arm of government, borrowed then lent to another part of government, the Treasury, and the BoE will not call in that debt. This is a formula the entire Chinese economy, with state run banks and companies, is based on. A country that, unlike the UK who put the £400 bn into the stockmarket, uses the power of self-minted currency to build infrastructure, fund education and develop space programmes, amongst other socially desirable needs.
Scotland, as a currency issuer, could do something similar. A Scottish currency can be issued by a central bank and spent by government with few restrictions. This money would be an IOU on Scottish labour, products and resources. In some cases, such as renewable energy, our resources are close to endless. (Will the sea run dry? Will it stop raining?) Therefore, there is a huge latitude to issue money as there will always be resources to buy.
Of course, we have to be rational. No point issuing so much money that the money itself becomes unstable through inflation and the country ends-up chasing its tail as it has to create more money as prices rise. However, common sense and vigilance in this area combined with the natural working of the economy would allow Scotland to spend billions on infrastructure, education and social programmes that it cannot at the moment.
There are a few key points. A Scottish currency must be accepted as taxation by the government. A Scottish currency’s issuance must be subject to rules by all currency issuers, such as banks. And, this is very important, all debt owed by the Scottish government must be denominated in a Scottish currency.
This last point is crucial. The biggest problem with Andrew Wilson’s Growth Commission is an unheralded problem. If Sterling is to be the Scottish currency for the first ten years of an independent Scotland, then all Scottish government debt is denominated in Sterling. Not only will that give the Bank of England control over an independent Scotland’s finances for those ten years, it will likely hand control over Scotland to the City of London for decades, since it is unlikely that the UK government would agree to that Sterling debt being converted into Scottish pounds, unless Scotland was to agree some kind of currency peg. Sterling debt would either crucify us by its demands of repayment or, through a Sterling peg of the currency, require high interest rates, starving Scots of cash.
In the meantime, we could end-up watching as the UK issues Sterling with impunity, and predatory Sterling-laden investors buys-up Scottish resources and businesses, thus crippling our ability to generate cash and pay the debts we owe. The inevitable response is forced deflation and austerity for Scottish working people, by its own government. Cynical, but it’s been done before. Yet this is completely avoidable.
This is why a Scottish currency is vital to genuine independence. It gives Scotland the power to have its own purpose; its own priorities; its own economy. Scottish spending should be on Scottish needs. And we should refuse to accept any debt denominated in any another currency. If that is not on the table, then we should walk away. We can create our currency without permission. After all, despite the impression that has been fostered, it does not cost a lot of money, relatively, to create a lot of money.