The pounds in your pockets
Several of today’s papers run with the story that in giving evidence to the Scottish Affairs Select Committee in Westminster, George Osborne yesterday made the claim that Scots could run out of cash under independence, as Scottish banks would no longer be able to print their own pound notes guaranteed by the Bank of England.
Osborne’s argument is that Scottish notes are accepted as currency in the UK under the Banknote (Scotland) Act of 1845. However, this legislation would no longer apply after independence without a currency union, thereby making Scots notes worthless.
In what was an oddly nervous and evasive performance before the Committee – despite its extremely friendly questioning – it was one of the Chancellor’s stranger assertions.
The first Scottish bank to issue banknotes was the Bank of Scotland, before the Union with England was created. On 17 July 1695 the Bank of Scotland was formed through an Act of the Scottish Parliament. At the time Scots coinage was in short supply and of uncertain value compared with the English, Dutch, Flemish or French coin, which were preferred by the majority of Scots and used informally. Trade was severely curtailed by the lack of an adequate currency, leading to the merchants of the time becoming strong supporters of paper currency as an alternative.
Notes which promised to pay the bearer were initially viewed with suspicion, however once it became apparent that the BoS could honour its “promise to pay” and that the paper was more convenient than coin, acceptance spread rapidly and the circulation of notes increased, making Scotland one of the first countries to use a paper currency.
After the Darien disaster and the Union of 1707, the Royal Bank of Scotland was set up in 1727 using the “Equivalent” (the sum of money paid to the nobles to sign the Act of Union, which had been largely paid in paper rather than the promised gold). On 8th December 1727 the bank issued six different kinds of notes (20 shillings, £5, £10, £20, £50 and £100) which were payable on demand at the bank’s office in Edinburgh.
Just over one hundred years later, on its opening day of 7th May 1838, the Clydesdale Bank began to issue notes. Early notes were printed in black only. It wasn’t until September 1777 that The Royal Bank of Scotland pioneered the use of colour in banknotes with a blue rectangle displaying the words ‘One Guinea’ and the King’s head shown in red. Colour didn’t come into widespread use until nearly a century later.
Today the Bank of England is the central bank of the UK and as such is the sole lawful issuer of legal-tender banknotes in England and Wales. In Scotland and Northern Ireland certain commercial banks are authorised, most recently under the Banking Act 2009, to issue banknotes alongside the BoE.
Scottish and Northern Ireland banknotes are fully backed with Bank of England banknotes, coin or interest-bearing accounts with the Bank of England. The bank’s own website notes:
“Today, the combined circulation value of notes issued by the authorised banks in Scotland is in the region of £3.5 billion.
In accordance with the terms of the 2009 Act and the associated Banknote Regulations and Rules, issuing banks require to fully back their notes at all times with ring-fenced assets held partly in Bank of England notes and UK coin and partly in deposits held at the Bank of England.
This, of course, means that holders of banknotes issued by the Scottish banks receive the same level of protection as that provided to holders of Bank of England notes.”
If the Bank of England was to push the matter (for some unfathomable reason), Scottish notes could be returned to the issuing bank for the assets that back them to be used to purchase Bank of England notes. The BoE would find itself forced to hand over the £3.5 billion of assets (some of which would be English notes in any case) to the Scottish banks. At that point no-one could stop the Scottish banks from subsequently buying English notes to replace the Scottish ones like-for-like.
Osborne’s gambit is a bizarre one, aimed at frightening people who have no idea of the technical ins and outs of how the UK’s currency works but an absolute nonsense to anyone who does. Scottish banknotes aren’t just conjured out of thin air, they’re representations of Scotland’s assets lodged in the BoE vaults, and will continue to be so whether Scotland is independent or not.
As the Scotsman quoted Treasury mandarin Sir Nicholas McPherson:
“If RBS or Lloyds – which owns the Bank of Scotland and Clydesdale Bank – wanted to continue to print money in Scotland, they would need a like-for-like number of British notes in their reserves to guarantee the money.”
As that’s precisely what’s already happening, we’re not sure what the scare is.
What I don’t understand is why don’t we just continue with this arrangement after independence.
We will.
What little I heard of Osborne’s distinctly evasive answering yesterday left me with one thought only.
According to the BBC he explained why a currency union would not happen, but naturally on reading their output all he really did was say again that it won’t happen. He may even have stamped his feet and shouted ‘because I said so,’ because as far as I can tell he didn’t give much in the way of a reason for why not.
The argument that Scottish issued notes have to be backed up in the Bank of England and are only worth anything because they are is a very, very odd angle to take. As you say, if they choose to get arsey about it those commercial banks could in practice simply tell them to hand it all back. In reality I can’t imagine RBS doing it, since they’re pretty much being puppeted by the size of the bailout and would likely toe the UK Government line, but the Bank of Scotland and Clydesdale Bank have no similar unhelpful problems hanging over them; the Clydesdale, owned as it is by National Australia Group, might well see such a move as a handy way to shove some serious money back onto their balance sheets and not worry over much about how it affects the UK Government.
And it’s worth noting also that there are special huge denomination BoE notes called “giants” and “titans” in existence for precisely this reason – so banks like BoS and Clydesdale don’t need to keep piles of “small change”:
link to bbc.co.uk
Doesn’t the National Australia Bank own the Clydesdale?
“We will”
So all the currency union guff is a rope supply exercise?
If you dig deep into the recesses of the Bank of England website it says that Scotland has assets to the value of £4 billion lodged with the Bank of England. Obviously so they have some lee way in printing money etc.
Good explanation Rev, cheers
Good historical background and summary and how paper pounds work.
Seems to me we have several viable options. The short-medium term solution that appears best for all is to continue the historical Sterling zone.
With progress in technology, I wonder if paper currency will eventually go the way of bank cheques?
That secret poll must have put the fear of death into them ?.
What is also curious is why many people find the concept of a currency board scary when that’s exactly what the Bank of Scotland, RBS and Clydesdale Bank are already operating.
If Scotland decided to create its own currency after independence (e.g., the Pound Scots) and link it 1-to-1 to the rUK Pound, the only significant difference between this and the current arrangement would be that it would be operated by the state-owned Central Bank of Scotland rather than by three private-sector (and to a large extent foreign-owned) banks.
Personally I’d prefer the Central Bank of Scotland currency board solution. It would give us all the advantages of using the rUK at first, but it would make it easier to make the Pound Scots free-floating or to link it to the Euro if a future Scottish government decided that would be a better way forward.
If you believe Osborne is speaking the truth then what he is saying is that come independence, your Scottish banknotes are worthless. But who exactly holds these cash assets apart from individuals?
Well, credit unions, banks, trusts, building societies, insurers, pension funds, businesses, trading firms, investment funds etc.
If he is to believed then, billions in Scottish cash assets held by all of us in Scotland as well as plenty of people, businesses & institutions elsewhere are holding onto cash assets which will overnight become worthless.
Apart from this being totally ludicrous, it is possibly one of the most stunning, bizarre & reckless statements to come out of the mouth of ANY Chancellor.
It is then so cosmically stupid that you can safely conclude it’s all bollocks designed to scare fact free voters into voting no.
Next ludicrous scare story please.
As someone not terribly blessed with financial understanding, I think I can get my head around what this means.
What I’d like to know though, if some gently soul can explain it to me, is whether or not the fact that none of our banks are really Scottish any more will have any adverse effect on us as an independent country.
Although RBS is still nominally Scottish, it is mainly owned by the state, isn’t it? BoS is owned by Lloyds, or it Barclays? Clydesdale is owned by some other non-Scottish group. None of our banknotes are printed in Scotland and our reserves/assets are all in the Bank of England which once we’re independent will be a “foreign” country. So where does that really leave us?
I’d like to think we’d nationalise the lot and bring everything connected with our banks back into Scotland but I know that’s not going to happen. So what bearing, if any, does the above have on the matter?
Please keep any answers nice and simple, just like me…
I know it’s not a new thought but reading this item made me think it for the first time that I can remember. We’re certainly not too wee or too poor but if the unionists can win the referendum with stuff like Osborne’s latest dribblings then we ARE too stupid.
I found myself thinking about the history of the referendum being written ten years after a no vote; when covering up the lies doesn’t matter any more. What s**t it will make us all look – the unionists for the contemptuous lies and scaremongering that became virtually the entire content of their campaign and the electorate for being so craven and dull witted to fall for it.
What that would do to our country doesn’t bear thinking about. I’ve just been out to do my round with the new ‘YES’ papers two days earlier than planned to drive these thoughts out, and we start the build up for our next public meeting on Saturday.
Come on everyone – another push – we CANNOT let these swine win !!
Weird quote by the Treasury mandarin appearing to state that Clydesdale Bank is owned by Lloyds. It’s not, as far as I’m aware.
As that’s precisely what’s already happening, we’re not sure what the scare is.
Simply hoping that the general public will not understand the issue. Sir Etonian Toff is simply doing the bidding of his fellow toffs in the Cabinet. Scare the plebs and hope they buy the bullshit until at least the 19th of Sept.
There will be more lies and half truths yet of that we can be sure.
You sometimes see enraged anti independence Britnats CiFing on national news sites that England’s voters will not allow, tolerate, vote for Scotland in CU with England but does that kind of stuff mean much?
Votadini Jeannie
I don’t think the “ownership” of banks makes any difference. It’s how they are managed, regulated and backed-up (e.g. deposit protection schemes, lender of last resort and economic standing of Sovereign states they operate in) that really counts.
Any bank operating in any country needs to work within the local regulations – like having enough assets to more than cover what they owe.
I say “ownership” because what does this really mean? As most banks are public limited companies anyone can own a stake in them. I guess if you looked into the precise detail of their shareholder registers you would find that most companies on planet earth are owned by a combination of US, Japanese and other citizens through their country’s investment culture and pension funds.
They are only worthless if people refuse to accept them.
“…Lloyds – which owns the Bank of Scotland and Clydesdale Bank”
Err, he’s not got that one quite right. BoS is part of HBOS which is owned in large part by – wait for it – us UK taxpayers, and Clydesdale Bank is part of National Australia Group Europe, s subsidiary of National Australia Bank.
Good article, Scott Minto.
Yes they are making it up as they go along. Lloyds does not own the Clydesdale, its National Australia or something like that.
This is the head of the Treasury in Westminster talking to the Scottish Affairs Committee in Westminster. Just goes to show that they know bugger all about Scotland and, that no one called him out on it, care even less.
Everybody keep your copper jar filled up it cost more to mint a 2p coin than it does to print a £20 fiat note
Is there a BT site that blows apart scare stories in the way that Wings does? Surely if we are better together it ought to be on a rational basis, and BT should be as sceptical about Whitehall’s fantastic declarations as anyone else.
Hows monies CREATED again? oh i already no debt so if monies is created through debt how can we ever pay all the debt back? oh thats right more debt lol time for a change to debt slavery
Another day another scare story by metropolitan ignoramuses who know little or care little about Scotland other than as a lucrative milch cow.
O/T Now Sport for YES
link to scotsman.com
Scottish banknotes are not treated in continental Europe as “normal” banknotes, but as cheques on the BoE. Hence it takes several days to be cleared and the (substantial)processng cost subtracted.
If Scotland decided to create its own currency after independence (e.g., the Pound Scots) and link it 1-to-1 to the rUK Pound, the only significant difference between this and the current arrangement would be that it would be operated by the state-owned Central Bank of Scotland rather than by three private-sector (and to a large extent foreign-owned) banks.
Thanks Thomas. I’ve been scratching my head trying to work out how what we have now – ie the status quo – is any different from a Scots pound pegged 1 to 1 with Sterling. Seems there is no difference, apart from the fact we don’t own the banks issuing the money.
I’d massively prefer this solution to a CU with rUK, and it seems far easier to implement as well. We simply call our pound Scots pounds, which they are anyway.
The other thing I don’t understand though is why they say Sterling on them? Surely if they aren’t legal tender, and have to be backed with “Sterling assets” to be printed, they’re not Sterling? We already have a Scots pound, which we’re effectively lending to the Sterling zone along with all our resources.
I have a sneaking suspecion the SNP have been extremely clever on this one. When it comes right down to it, if people in Scotland were given a choice of “go into a CU with rUK and use English pounds Sterling, but lose our own Scottish ones” or “keep our own Scottish notes, call them the Scots pound, peg them 1-1 with Sterling so you’ll notice no difference” the latter would win out.
Theirs more than one conspiracy in the world Rev.
McV saysat 1:47 pm
“Doesn’t the National Australia Bank own the Clydesdale?”
Yes I thought that as well and also that this explains why the Clydesdale Bank avoided all the problems of the 2008 crash as Australian rules do not allow casino banking. The former PM Paul Keating made it clear that his government regarded banks as public utilities and as such had to be strictly regulated.
Nicholas Macpherson made it obvious in his evidence to the Public Administation Select Committee that he will say whatever is necessary to save the UK. See link to tinyurl.com at approx 10:23
no we should back the Scottish pound with sterling silver not fiat bank notes.
Right, then so on the day that I cannot use the RBS £1 000.00 – would you mind nipping down to the BoE and get me my BoE Gold/Assets that it is representative of?
A one ounce 999.9 Scottish round with a face value of £20. then the monies are backed by an asset not debt.
I am up for the Merk and calling the new First Minister of Scotland The Chancellor.
That would be a very public GIFY for UKIP, BNP, England FIRST, EDL and the OO.
“Err, he’s not got that one quite right”
I’ll await the MSM outrage that a Treasury Mandarin doesnt know who owns what bank…
GIRFUY
sorted
Osborne’s argument is that Scottish notes are accepted as currency in the UK under the Banknote (Scotland) Act of 1845. However, this legislation would no longer apply after independence without a currency union, thereby making Scots notes worthless.
Erm, is there any chance someone can have a word in Osborne’s shell-like. Scottish notes are accepted as currency in the U.K.. I beg to differ Bubba. There are large swathes of *ahem* U.K. that do not accept Scottish notes. In fact there is no better example of this accepting, sorry NOT accepting, of Scottish bank notes than the good old London Underground. They very proudly have signs all over stating that their ticket machine do NOT accept Scottish notes. So what was that that Osborne was saying again about Scottish notes?
Several of today’s papers run with the story that in giving evidence to the Scottish Affairs Select Committee in Westminster, George Osborne yesterday made the claim that Scots could run out of cash under independence, as Scottish banks would no longer be able to print their own pound notes guaranteed by the Bank of England.
I’m sorry but what is the point of the £4 Billion or so that is currently held in the Bank of England then if it is NOT to guarantee Scottish bank notes? Oh I forgot we just put this money into the Bank of England’s vaults because we are just an overly generous country, we just like giving people, and banks money for no good reason what so ever!
I wonder what Mr. Kearney would have to say about the idea of us removing our £4 Billion or so from his bank. I don’t think he’d be too happy, nor would the financial markets I reckon.
I’m quite happy to let Osborne continue living in his fantasy world of incompetent economics and I look forward to the day when we turn round to him and tell him that as he still refuses to agree a Currency Union we’ll go it alone with OUR pound oh and we WILL be taking back OUR £4 Billion in reserves thank you very much! I’d like to see him try and explain that one away in Westminster. What’s even better is that neither Balls or the Lib Dem financial *ahem* wizard could say anything cause they have all already agreed with Osborne!
Are you sure Sir Nic said that? If so he is a moron.
Clydesdale bank is not owned by Lloyds, it is owned by National Australia Bank.
Perhaps he is confused by the arrangement Lloyds had with the Clydesdale to supply Clydesdale notes to LTSB branches and ATMs in Scotland rather than them using Bank of England Notes.
Of course this arrangement became amusing as the contract was signed to run for some decades, whereupon Lloyds took over BoS and would naturally prefer to use BoS notes, but contractually cannot.
@ Nick
The RBS note will still be accepted by RBS as they will trade it for the assets that back it. You dont need to take a trip to the BOE.
Brown, then Darling, and now Osborne. Why does the Westminster government keep appointing economic illiterates to the post of Chancellor?
Just checking through my pockets here, but I believe Scottish banknotes still have the legend: “I promise to pay the bearer on demand (X) pounds sterling” whereas Bank of England notes say “I promise to pay the bearer on demand.” I’m no expert but I doubt this is just semantics, especially as BofE notes used to have the old wording. Not sure if this changed recently due to the flood of quantative easing, but it suggests that one can only print notes back by reserves while the other can, well, print as much as it thinks it can get away with.
As I said, I’m no expert but there will be long term consequences to such a policy and I for one do believe we should distance ourselves politically AND fiscally from that inevitability.
@scott, @cath, @murray et al
Never knew or indeed thought about any of this before. Just kind of assumed that there was a system that worked. But now that it’s come to the fore, courtesy of our esteemed chancellor, and more people (like me obvs) read posts like these, we start to understand how monumentally stupid these pronouncements are.
I mean did Osborne plan to say this because Darling or Sir Nick told him to, or did he just think it was a great thing to say off the cuff? Incredible.
We all believe Scottish independence will be a step towards improving the everyday life of people in Scotland. We will be able to set our own policy priorities given whatever resources we have.
Longer term there is the distinct possibility of Scotland’s political landscape and economy being quite different from that of rUK. The way things are shaping up, I hope it is.
This is why, longer term, we need to consider having our own National Reserve Bank, currency and regulatory framework.
I’ve just got this vision of Osborne stamping his feet in frustration after trying to play tough in negotiations after September as convoys of security trucks head north full of English notes as the Scottish banks repatriate their property.
But we all know it won’t happen and and agreement will reached as a failure to do so would would cause instability to the pound and the financial markets in the City of London.
Additionally, RBS is still likely to be owned by the UK government, so is the UK government really going to want to see RBS and the Bank of England trash each other’s business?
Talking of Pounds–the Weirs have just donated another £Million to the SNP. Seems that the smearing campaign by the Unionists has backfired spectacularly. Well done the Weirs.
Proud Cybernat – I feel so sorry for the Weirs. They try to be diplomatic and say that both sides need to temper their arguments after they are personally attacked and smeared, and it gets spun as “even the hyper-Nats think their own side need to tone it down.” It’s utterly sickening.
It’s times like this I like to look toward Hong Kong.
Ok, it’s a Special Administrative Region of China, but it is somewhat analogous to Scotland and what could happen here.
HK has it’s own currency the HK Dollar. This has since the 1970s been pegged to the US Dollar. The peg has marginally changed occasionally over the years, but is otherwise set in stone.
Their banknotes, like Scotland are issued by commercial banks (except the very low denomination 10 dollar note which is retained and produced by the HK Monetary Authority for cultural reasons). These commercial banks are ALL “foreign”. Bank of China (PRC), HSBC (UK Registered), and Standard Chartered (UK Registered).
HK is a population of around 7 million and has foreign reserves more than double that of the UK. I am not talking per capita, I am talking in nominal terms.
If Osborne really knew what he was about he’d be away working out how a country with a ninth of our population, has double our reserves. Rather than coming here to lecture us. Furthermore, HK was so concerned about the way the UK was going she recalled all her UK resident gold in 2009.
I have a terrible feeling in my stomach. Much like the one before Bush/Blair invasion of Iraq. When will (lying) politicians realise that not everyone is stupid.
The piper must be paid.
Very good point, Cath!
Nice one Scott.
Puts meat on the bones of the argument.
What is important is our country’s “balance sheet”
Including of course “assets”. Currency is a “means
Of exchange” and I am quite sure we can barter
The odd barrel of oil or case of whiskey?
What about taking the Scottish portion of the state owned RBS as part of an assets settlement? No need to create a new bank, just recycle the old.
Osborne’s underlying message is quite clear:
Without us, you scots are worthless. You will end up penniless.
There is no way that you could stand on your own feet.
That will go down well!
More and more people in Scotland are starting to ask the obvious question:
Do we really want a currency union, with these idiots running the show?
Just checking through my pockets here, but I believe Scottish banknotes still have the legend: “I promise to pay the bearer on demand (X) pounds sterling” whereas Bank of England notes say “I promise to pay the bearer on demand.”
Thank you, Dr Ew. That has just answered my question about why they say Sterling on the notes. They don’t – they promise to pay the bearer Sterling on demand. They really are not Sterling, but a Scots pound pegged 1-1 with Sterling. It’s just with the total fiscal, political union, that becomes irrelevant. With independence it no longer is.
“Why does the Westminster government keep appointing economic illiterates to the post of Chancellor?”
Is anyone else starting to get the impression they really, genuinely DON’T KNOW how UK currency works at the moment? It’s understandable that international banks and economists might not, and might miss the whole “Er, Scotland already has something which is more like a Scots pound pegged 1-1 with Sterling than an actual part of Sterling.” But you’d think a government attempting to use a CU against us for independence would understand, right?
“Osborne’s underlying message is quite clear: Without us, you scots are worthless. You will end up penniless. There is no way that you could stand on your own feet.”
That is how such people genuinely think. It’s why the whole idea of Scottish independence is so unfathomable to them.
@Thomas Widmann
Not so much scary as disappointing, limiting, and frustrating. As you say, there is a sorta-kinda currency board already in operation for the Scottish banks that print notes, but they, and Scotland, have the advantage of being in a sovereign nation which could, in theory, use its currency issuing power to support its citizens interests. To support them in ways that are hampered by the constraints of a currency board, ie. when deficit spending is necessary.
In practice, the UK doesn’t properly support its people, but it could.
If an independent Scotland as a whole operates a currency board, or in a CU with rUK, then it will face the same constraints, but without the larger currency issuing nation to ‘take up the slack’. Scotland will be the nation in question. Maybe exports will be sufficient to make deficit spending unnecessary, or maybe they won’t. The flexibility needed to deal with the ‘or won’t’ scenario only comes with full currency sovereignty; a floating Scottish currency.
It’s certainly better than a full currency union, but frankly I’d go with a floating currency right from the beginning. If properly initiated there really isn’t any downside, and it’s better to have it in place rather than rush to try to deal with an unexpected need for significant deficit spending.
That would be abandoning the flexibility again.
Just a question–the Scottish Govt. keep stating that without a CU the rUK economy would be gubbed, losing around 10% of its GDP overnight and that such an outcome, as Scotland’s largest market, would be bad for Scotland and so a CU is in Scotland’s interests.
What’s the consensus here on that notion?
I’d be happy to use cowrie shells and beads if it meant we would be free of these thieving carpetbaggers.
I asked the Wee ginger Dug about this months ago and was put at ease with his interpretation .
I also asked him “whats the impact on the rUK when Scotland is independent ”
I was trying to see the other side of the yes vote and find it almost impossible to weigh Scotlands worth. The value would have been a good argument for YES or NO depending on the figures but even though there are many “guesses” or estimates no one really knows other than the treasury.
Cu will be a gimme after a YES vote because refusel will mean Scotland not taking a share of the debt. the Uk has lost its credit rating and is almost bankrupt.(or so they tell us) We have quite a bit in our locker to bargain with but i feel there is a bigger chip here that is overlooked . How much is Scotland REALLY worth ??
Come sept18th I think we are in for a nice surprise and rUK are in for a shock. My logic is simple because we dont get to know as it would change everything. If we were a burden it would be out there i facts for all to see . Buts its all smoke and mirrors.
I have been on Buisinesforscotland and the like but no-one can be accurate as the dont have all the figures . Showing real facts Scotland was a subsidy junkie would have killed the YES vote dead. And by that logic I smell a rat.
“the Scottish Govt. keep stating that without a CU the rUK economy would be gubbed, losing around 10% of its GDP overnight”
Personally I don’t get that argument. The UK will lose 10% of it’s GDP anyway, with Scotland going independent, along with 10% of its taxes, reserves, assets etc. But it’ll also lose 10% of, its debts and, say, welfare spending.
The issue is more one for Sterling than the UK, although the 2 are obviously linked. The Sterling area would lose a lot of overseas income from exports, as Scotland is a heavy export region of the UK, especially given oil and whisky, and potentially more so if we’re investing in renewables.
Quite what the knock on effect for that would be for the UK economy and figures, I don’t know. It wouldn’t be good. Deutsche Bank had something to say about it – link to heraldscotland.com
Equally, I can’t imagine it would be catastrophic. It’s just Scotland leaving Sterling entirely is the least good option for the UK. And that’s a far more likely outcome than Sterlingisation, other than for a very short period of time. Especially given the Scots pound pegged 1-1 actually appears to be the status quo.
Osborne’s argument is that Scottish notes are accepted as currency in the UK under the Banknote (Scotland) Act of 1845.
As Lesley-Anne says above, try having your Scottish notes “accepted as currency” in most of England…
Then there’s trying to get your Scottish notes exchanged at Bureaux de Change… Good luck with that!
Having attempted to change Scottish notes in airports and banks from Amsterdam to Taipei and many places in between and been left exasperated, frustrated and, on occasion, embarrassed by the whole experience where Scotland’s banknotes are seen as being not ‘real’ Sterling compared with those of England, somehow inferior, does not give one great affection for the ‘shared currency’ of the UK.
Did anyone notice Labour’s Pamela ‘nana na na na’ Nash also ask Gideon to explain to us poor Ignorant Scots, just how Sterlingisation wouldn’t work either. We are doomed….
Thinking about exports, of course most exports have to go from English ports, so the figure the rUK will lose may be far bigger than that we’re currently given as “exports from Scotland” while the figure we’re given for “exports from Scotland to rUK” is likely to be a lot lower.
Shiehallion! Shiehallion! says:
15 May, 2014 at 2:22 pm
Is there a BT site that blows apart scare stories in the way that Wings does?
In BT’s defence, there aren’t any scare stories for them to defend; they only create the scare stories….and they are useless at that!
But agree this about Wings:
“Nobody does it better
Makes me feel sad for the rest
Nobody does it half as good as you
Baby, you’re the best”
@FlimFlamMan: I don’t want to make too many assumption about what the government of Scotland will want to do in ten or twenty years’ time. This is why I’m saying it’s a great advantage of a currency board that the link can be broken if a future government so decides. If we use actual rUK pound notes and coins, it becomes much harder to change the currency policy in the future.
I can also see the advantages of making the currency free-floating from the outset, but I think it will make the transition to independence harder for many cross-border businesses, which is why I’d prefer to link our currency to the rUK pound at first (and perhaps guarantee the link for five or ten years or so).
I handed a Scottish tenner over to the guy in Freebird Burritos at Liverpool Street Station at lunch time, he didnt bat an eye in accepting it and handing me some meagre change.
Hmmm….Should I be worried?
@Murray McCallum
It’s not even a long term thing. From the instant of independence one country, Scotland, will likely be running an external surplus while the other, rUK, will be running a large external deficit. That’s a very significant economic difference between the two countries and it will drive different policies, right from the outset.
It’s why rUK would be negligent to agree to a genuine currency union, one where they give up sovereignty; losing the ability to finance that external deficit would wreck the rUK economy. Of course, that’s not the reason Westminster gives for refusing, so who knows what they’re thinking.
I wonder why the Bank of England was never renamed as the Bank of the UK, or the Bank of Britain.
It is the UK’s central bank, but the name helps to give the impression that Scotland doesn’t own a share of it.
Thomas Widman, I agree. That’s what Ireland did. They used the pound Sterling until they created the Punt, which was controlled by a currency board that transmogrified to the Bank of Ireland. The Punt was tied to the value of Sterling. I recall when I used to visit Ireland in the seventies, the shops in Dublin and elsewhere accepted the pound Sterling. That was one way of getting Sterling into the vaults of the BOI. It isn’t Rocket Science. It can be done.
“If we use actual rUK pound notes and coins, it becomes much harder to change the currency policy in the future.”
This is why I don’t support a CU, but would much prefer a Scots pound. I’d like to see it pegged to Sterling initially, mainly because that will make for a far easier transition and essentially leave us with the status quo in terms of the cash in our pockets.
But the freedom to unpeg, and to re-design our notes, and monetary independence while we find our feet seems pretty vital to me. The kind of CU Westminster would demand seems far too restrictive.
We have two Nobel Prize winning economists in favour of Currency Union, so wouldn’t it have been a good idea to trot them out today and compare their expertise with his, giving him the biggest slap in the face?
Perhaps tomorrow…..
FlimFlamMan
I agree with you on the different external trade balances, but wonder if this really will have such a relatively more dramatic impact than other key policies and indicators?
Things like economic growth and prosperity (an external surplus does not guarantee that), perceived future economic prospects, fiscal deficit / surplus, government economic and monetary policies, etc. All of this would be in the context of British Isles, European and global changes.
I hope for a fair and lasting financial settlement with rUK. I don’t want any party to feel aggrieved. I think us all sharing a currency for a relatively small period of time will help this along.
I would hope people in both Scotland and rUK would see the need and timing for a natural break in currency. I have no problem with that.
@Votadini Jeanie
In New Zealand none of the banks are wholly NZ owned, not even the BNZ. It makes not the blindest bit of difference really. They are still under the law of NZ in terms of their operations there as the banks operating in Scotland after March 2016 will still be under Scots law and regulations. Lots of small countries don’t own the banks that operate there which is actually not a bad thing as Cyprus where that is not true showed.
The NAB could decide to end the Clyesdale brand as Santander did with the Abbey but they would be fools to do that as there is value in it and a lot of ‘proud Scots’ would withdraw their money in protest even though in effect it would mean nothing. Also hanging onto many of the Clydesdale’s ancient rights would be difficult if they did that.
@YESGUY
They, whoever they are, are lying. The UK is not bankrupt, or even nearly bankrupt, because it has its own currency. It doesn’t even need to issue bonds. Yes, rating agencies lowered the UK’s rating, and bond yields went down, not up; bond buyers know full well that the UK government, as a Sovereign currency issuer, cannot be forced to default on debt denominated in that same currency.
The same will apply to rUK if it continues to issue its own currency, and to Scotland if it does the same; rating agencies and bond markets can go fish.
@Cath
Yes, the disparity is likely more extreme than it appears, since some UK exports from English ports will become Scottish exports, even if they continue to leave Britain – the chunk of land – from English ports. And I agree, the significant effect will be a lowering, though not a collapse, of the value of sterling.
@Thomas Widmann
I agree, a currency peg/currency board is a lot easier to end than a CU, since the new currency does already exist in that case, just fixed in value*. I’m not fundamentally opposed to a peg, but I am fundamentally opposed to a guaranteed** time period for a peg; a five or ten year guarantee can only work if economic conditions five or ten years in the future can be guaranteed.
* This assumes a peg is possible, but it probably would be for Scotland, given Scotland’s probably external surplus.
** And here I’m assuming there’d be some sort of penalty for breaking the guarantee.
link to scmp.com
HK$ 11.50 for SCP pound HK$ 11.30 GBP April 2013.
Ok, Who owns this £4billion lodge at the Bank of England? Is it Scottish, or a ‘Scottish’ bank or banks as the ownership of the ‘Scottish’ banks appear to be in dispute.
Could this sum be recalled to a new Scottish bank in order for a lender of last resort be established?
Anybody please – keep it simple – “Mongo only pawn in game of life!”
The term legal tender is much misunderstood aswell.
Legal tender only comes into being when settling a debt through a court.
Legal tender must be given and accepted in the exact ammount and no change can be given.
Legal currency is more apt when discussing day to day use of money.
Anyone can accept any currency if the two partys agree on it.
I dont think Scottish notes are legal tender anywhere.
All sterling coins are legal tender.
English notes are not legal tender in scotland either.
Maybe the scare is,like what happened when Venezuela wanted to repatriate their gold on deposit,they don’t physically have the gold and will have to stall or scaremonger their way out.
link to bloomberg.com
The act in question was to do with how bank notes issued were to be backed. It was changed over the years to the current version which requires a 1:1 deposit. Prior to that Scottish Banks only had to maintain a close track to the value of there notes which allowed them to “borrow” those assets for a short period of time, play the market to make a bit more, and then put it back where it came from. Ending that may have been meant to introduce stability but it also undermined the profitability of those banks. As things now stand I’m not sure why the banks that can issue them continue to do so other than tradition and, perhaps, as a form of advertising. Might also make it easier to keep their cash machines stocked.
Maybe the scare is,like what happened when Venezuela wanted to repatriate their gold on deposit,they don’t physically have the gold and will have to stall or scaremonger their way out.
Surely that would only be a problem if there isn’t a CU, and the BoE has to repatriate all the reserves currently backing the Scottish notes?
Osborne will be up to his neck in it if the Scots do decide to create a new currency and don’t take any of the debt.
Then what is he going to do? How does he try to talk himself out of that one to the Business World and the rest of the Masters of the Universe types?
So…big question! How to get this message across to others in a simple coherent and positive way. No matter what is said, we should be looking for tools that allow us to do this.
I’m gonna think about an infographic to highlight how things currently work and what natural options exist and are in the best interest for Scotland and for the rest of the UK.
We need to work at getting this message across to all Scots as it’s a large part of the decision making process.
J
The only legal tender banknotes in Scotland are Bank of England notes up to the value of (but importantly not including) £5.
Therefore the only legal tender note in recent history was the Bank of England £1 note.
@seanair
There’s no such thing as the Nobel Prize in economics, what there is is “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”. It’s nothing to do with the actual Nobel committee.
That’s not the real problem though. The real problem is that the Riksbank Prize promotes the standard mainstream, neoliberal economic model, the one that caused and continues to cause so much trouble. It and its recipients are not deserving of any special respect.
@Murray McCallum
The UK economy would long since have collapsed if we did not have our own currency; external deficits require currency sovereignty if they are to be sustained, via deficit spending. After Scottish independence the rUK external deficit will be even larger than that of the UK. GDP will shrink and, most likely at least, net imports will rise.
Currency sovereignty will be even more important to rUK than it already is to the UK, and that limits the currency arrangements that will work for both countries.
Full sovereignty – floating currencies – for both will work.
Full rUK sovereignty, and a peg/board in Scotland will work.
A fake CU – control remaining in rUK – will work, except Scotland would be tied to a system which gives it no control.
A genuine CU would wreck the rUK economy and quickly drag Scotland down as well.
That last option would work, if both countries ran external surpluses, but rUK won’t be anywhere close to a surplus. This is why the difference between the two countries will be vital right from the moment of independence.
Absolutely, and neither does currency sovereignty. Governments can and do squander the capabilities they have, as the UK gov. has squandered the benefits of its currency sovereignty.
I think an independent Scottish government is less likely to do that though, not least because the level of engagement that the referendum process is generating will mean the SG is under far more scrutiny, genuine and actionable scrutiny, from its people than Westminster is.
In general I agree with your comment, especially this:
Yep, and if left up to the people I’d expect nothing less. With Westminster involved? Meh.
An interesting article from the blog The Scottish Times
A Scottish Currency Plan A Plus
link to scottishtimes.com
@Cath
Even then it’s not a problem, since the BofE is one of only two* sources of net financial assets denominated in sterling. The BofE creates sterling when it needs to, so there’s no basis for not handing the reserves, or cash, over to Scottish banks.
* The other is the UK Treasury, and since the Treasury owns the BofE there’s really only one source.
@JLT
He doesn’t need to, since none of them are the source of the currency, or the debt denominated in that currency, in question. This doesn’t mean that Osborne isn’t a human sh*t-stain; he is, but that isn’t an economic problem.
Anyone who listens to the crook George Osbourne must be off their head. A cunning greedy tax evading crook who is responsible for the vulnerable being sanctioned and walking miles to food banks.
George Osbourne knows absolutely nothing about Banking, just like the rest of the tax evading Unionists fraudsters, especially Gordon Brown.
Thatcher demutualised the Building Societies owned by their members.Dangerously deregulated Banking, so the Tory Bankers who funded the Tory Party could crash the Banking sector and the UK economy. Thatcher secretly embezzled the equivalent of £Billions from Scotland. Vote YES.
The Labour/Unionists secretly buried the McCrone Reort and embezzled the equivalent of £Billion from Scotland. Vote YES.
Under the One Nation banner, why does someone not ask Ed Milliband in a live exhange if he favours renaming the Bank of England to Bank of United Kingdom to better reflect its position as the UK’s central bank. Would go down a storm in England I am sure.
“Scottish banknotes aren’t just conjured out of thin air, they’re representations of Scotland’s assets lodged in the BoE vaults, and will continue to be so whether Scotland is independent or not.”
What assets are these? Where are they defined?
“What assets are these? Where are they defined?”
Pro tip: questions about an article are often answered if you actually read it.
@Anonymous – What do you think backs the currency – Scotch Mist?
FlimFlamMan
OK, I stand corrected that they’re not Nobel Prize winners, but are described on page 109 of Scotland’s Future as Nobel laureates on our Fiscal Commission—still streets ahead of Gideon don’t you think?
O/T. At FMQs today Ruth Davidson did everything possible to suggest that the Commonwealth Wealth Games tickets fiasco was not Ticketmasters fault but Alex Salmond’s. Very bad timing that the news hadn’t broken that the same company had ballsed up the tickets for the 2015 Rugby World Cup in England. Imagine if AS had known, he could have nailed Ruthie by asking her if that meant David Cameron was responsible. Not to be sadly.
@FlimFlamMan: I don’t think the guaranteed duration of a currency board should have a penalty attached. It should simply be a paper signed by all the major political parties saying they won’t pursue other currency arrangements for the duration of the pact. A gentleman’s agreement, if you will. Just to ensure companies can plan ahead for the next few years.
Do they realy believe that by threatening us and lying to us that will convince us to stay in their corrupt union what they are saying really is you have no right to to decide your own future a right that they champion for every other country in the world independence is a noble thing until it comes to Scotland then that’s different they just think that we have no right to decide our own destiny to put it mildly they have a bloody cheek Vote yes
I’ve just sat through the stultifying performance of the Scottish Affairs Committee “The Referendum on Separation for Scotland” session. If anything illustrates the fatuous and pointless nature of our representation in Westminster then this does. Here was a group of Scottish MPs, all of them Unionists, pretending to grill the Chancellor and his Permanent Secretary on the pros and cons of a currency union. In fact they were cueing them to make disparaging and, in some cases, totally false assertions about Scotland’s economic situation. None of their assertions were challenged (although at one point it seemed that Jim McGovern was going to point out that Aberdeen had bailed out the UK but he soon denied this.approx 14:18:20)
Scottish MPs appear to serve one purpose, to shore up the legitimacy of Westminster. Do we really want to sustain this charade any longer?
For those interested in understanding what George Osborne was getting at, I recommend:
link to coppolacomment.blogspot.co.uk
@seanair
Better than Gideon? Well that’s not a very high bar, but yes. Stiglitz at least has his heart in the right place but, being a member of the mainstream of economics, has his head “fuddled with nonsense”. Sectoral balances matter, and the state of the rUK’s balances has unavoidable consequences for a currency union. Mainstream economics ignores this, and much else besides, so it gets little things wrong here and there. Like the global financial collapse.
@Thomas Widmann
It’s not much of a guarantee if it can be broken without any sort of consequence. Why sign the paper if the agreement can be broken at any time? Companies and individuals seem to manage okay with purchases in foreign currencies as it is. Exchange rates fluctuate; if it was a huge problem there’d be no international trade.
@Churm – not one mention in that piece about the fact that Scotland is entitled to 10% of the Bank of ‘England’ so he needs to rethink his article as he says.. This is indeed “batshit insane”
@ Croompenstein – I’m not sure what you mean by the statement that “Scotland is entitled to 10% of the Bank of England”. In what specific respect(s)?
To the extent that we are entitled to a per capita share of UK assets. Of course Westminster might decide that due to strategic or other reasons they do not wish to share the BoE or reduce it in size. At that point they will be on the horns of a dilemma as to exactly how much value they place on it. Too high and Scotland take a far lower share of debt too low and not only would Scotland object but it would also have an adverse effect on the value of Sterling.
@Churm – The Bank of England is the central bank for Scotland, as well as for England, Wales and Northern Ireland. It was formally nationalised in 1946 and is therefore an institution and asset owned both by Scotland and the rest of the UK.
The 10% is Scotlands population share
Capella says:
“I’d be happy to use cowrie shells and beads if it meant we would be free of these thieving carpetbaggers.”
Funny you should say that! I said the exact same thing to someone last night!
I really don’t care what I get paid in, as long as it pays the bills and is accepted in the shops!
It would serve Osborne and company right in the event of a Yes vote and the Scottish government said ” OK – we don’t want the pound – keep it and the debt and by the way, the nukes are on eBay!”
I apologise for not being able to attribute a name to the notion (last week?) that our wampum should be based on “Blue Bleads” (sorry-beads)or today`s idea to base a Wampum Union on cowrie shells.
My wampum memory being a bit wonky, but I seem to recall that the Lacota Souix held the monopoly on blue bleads.
Until “The Long March” which massacred more than 90 per cent and those who survived were coerced into submission with a bowl of Gruel and made “Wounded Knee Compliant”.
Anyone recognise any similarities.?
My facts may be ropey but……?
@Croompenstein: Certainly. But the issue of ownership only really arises, I think, by way of the Scottish Government’s proposal that after independence monetary policy across the entire Sterling area, including Scotland, would continue to be set by the Bank of England and that the Bank should be accountable to both Scotland and the rest of the UK through a shareholder agreement under which (presumably) Scotland would have a 10% say in policy. Which in my view is eminently practicable, though it would leave Scotland as very much the junior partner to rUK as far as monetary decision-making is concerned.
But I still don’t understand what relevance this has to Frances Coppola’s analysis, which is specifically based on the assumption that there will be no currency union – she’s not saying there won’t be a currency union, she’s setting out what might happen if there isn’t.
Because of the Currency Act 1876 or something like that, Scottish Banks are forced to cover 100% all their banknotes in circulation with the sterling equivalent, giants and titans. In Independent Scotland there would be no such requirement, and the three banks could therefore issue notes to 150%, 200% 500% of their reserves.
It seems also Scotland would not need a central bank, as our needs could be met by private banks, including these three. Sorry for vagueness, I read an article some time ago and can’t think of adequate keywords to search for the reference. It’s out there!
Osborne, as we all know, makes as much sense as an ice-cream in a microwave.
I forgot to say that these three banks already have exact reserves to cover those banknotes in circulation at the BoE, and all they would have to do is withdraw their deposits and ship them to Glasow or Edinburgh to sit in their own vaults to cover the bankotes aleady in circulation – and to print whatever allowance over 100% they were allowed to do (by the Scottish Government presumably).
Beware the sequel to the Great Train Robbery!