I was puzzled when Alex Salmond, during the referendum on Scottish independence, opted to push a particular model for currency in an independent Scotland; it simply wasn’t necessary. As Iain McWhirter recently argued in the Herald, it’s the sort of decision that can be put off till later, and it’s perfectly possible to change the model if something isn’t working. In the current debates, I think we’re seeing a reiteration of many of the same arguments. All of them seem to me to be based on a false premise: that Scotland must choose its currency. Why?
The Growth Commission, which fell victim to the same elephant trap, starts off its discussion by identifying three purposes of money: as a medium of exchange, as a unit of account, and as a store of value. They could quite reasonably have added a fourth, because it’s most of what their discussion is about: money as an instrument of economic policy. The histrionic criticisms made by some of the pro-independence commentators have suggested that it is not possible to be independent without an independent currency. This quotation from Wynne Godley, objecting to the Euro, is going the rounds on Twitter:
the power to issue its own money, to make drafts on its own central bank, is the main thing which defines national independence. If a country gives up or loses this power, it acquires the status of a local authority or colony.
Have at you, France! Italy, you are a local authority! I blow my nose in your direction!
Let’s take some of the heat out of this. Money of all kinds can be used as a unit of exchange. There are lots of places where currencies of different sorts will be accepted, regardless of what the official currency might be. I’ve been places where they wouldn’t accept local currency, but asked to be paid in dollars. As someone told me in Croatia, asking for payment in pounds: “Money is money.” And money can be a unit of account in one currency while it is being exchanged in another. When I was in Poland, my formal contract was paid in zloty, as the government requires, and tax was deducted in zloty, but the job offer and the pay were in Euros.
Scotland could survive while using the British pound. Despite some of the nonsense that people come out with – such as George Osborne’s preposterous claim that Britain would “stop” Scotland using the pound and that there’d have to be trucks crossing the border carrying notes and coins – whether or not Scottish people use the pound, or any other currency, is down to them. But things don’t have to stop with the pound. The Scottish economy, for those who haven’t noticed, already uses two currencies. Most people use the pound sterling in ordinary life, but the oil industry conducts its transactions in US dollars.
In the past, it’s been difficult for buyers and traders working in multiple currencies. The main issue has been the practice of the banks. A combination of technology and competitive innovation has already largely overcome that. Most retail payments in the UK are now made by card, not cash. I use a bank which offers me parallel currency accounts and transfers without holding or transaction fees. As transactions are cashless, there’s absolutely no reason why people shouldn’t hold accounts in Euros, pounds, dollars and other currencies at the same time; traders could make their own choices. Scotland could reasonably have four currencies: a Scottish currency, the dollar, the pound and the Euro. The main reason for having a separate Scottish currency would be as a unit of account and a tool of economic policy. Whatever the choice is, we don’t need to get hung up about it.