Trails of separation makes the Scots contented. The possibility of Scotland being a sovereign nation is coming to reality. The benchmark low interest rates are hovering around Europe and while USA is 2 years older in facing the recession than Europe it is evident Europe will need much longer than USA to recover.
Can Scottish independence be the forefront growth engine for Europe’s tattered economy or can the Scots make it at least good for themselves if not for Europe?
Scotland’s political liberty may not grant it the economic liberty and economic sovereignty. Independence would mean UK has to let go off its hands from the rich North Sea oil and gas fields many of which would then belong to the new nation. It’s unclear if the North Sea oil is the sole reason for the determination of self-rule in Scotland. Going by the SNP’s (Scottish National Party) ‘It’s Scotland’s Oil’ slogans in the 70’s, this may be the sole or the a vital economic reason for independence but it’s highly unlikely the skewness in the BoP can be solely filled with the profits made out of oil neither the newly independent country can risk creating an entirely new economic system.
Scotland thus has to decide on whether they have to shift to a complete new currency or inherit the Euro or keep themselves connected with the Pound (or decide to go back to the Sterling Pound). The Euro as the Scottish currency will not happen specially with the on going debt crisis and the turbulence in the European Union.
Bringing a new currency in usage would mean total dependence on Scotland’s own and abundant natural resources but pegging the new currency is likely to affect the standard of the currency.
Secondly, it can increase the debt liability of Scotland when it comes to debt sharing as Scotland is a resource rich geography and UK is likely to lose more than gain by making Scotland independent arguably. Leaving the newly adopted currency to the pressures of the capital market, which can be the largest determinant of its value, can weaken the currency thereby giving a blow to the Scottish economy even before they start. It is also questionable if Scotland can adopt the Euro as its currency because the convergence criteria to join the Economic and Monetary Union may be failed by Scotland in view of UK’s debt. This means Scotland has to coax itself to be the fourth country to join the G-3 (UK,France and Germany by choice and Scotland by force).
The third option is to adopt the pound as its currency, a union currency, which insures Scotland of the volatility it might face in restructuring the domestic economy. The Central bank can thus act as the lender of last resort in times of crisis. Scotland and the rest of UK have been principal trading partners of one another and a union currency for the two nations prompts a positive effect on their balance of payments (BoP). Also the massive exodus of financial institutions and banks from Scotland can be checked with this move. Recent developments cite that UK has remained dispassionate in a union currency with Scotland. This pushes us to analyse the Fourth Option-
Scotland can start up with a currency of their own with tender to the natural resources and assets of the country and keep the Pound as its another official tender for exchange – a dual currency system. Such a system holding up would well insulate Scotland from the external shocks they face as a newly independent nation, easier acquiring of loans for development and time to build the institutional infrastructure to suit Scotland’s economy. The dual currency model is not untested. Serbia- Montenegro which is one country share two different types of currencies. Serbia uses the Yugoslavian Dinar while Montenegro uses the Euro or El Salvador accepting USD. European principalities like Andorra and the Vatican use Euro denominations though they aren’t a part of EU. Acceptance of multiple or dual currencies will mitigate the effects of a large scale shock to the new currency linked to the peg system. The acceptance of multiple currencies needs to have a period of upkeep as long term lingering of such practices would stall the development of the local currency because sovereignty does mean economic freedom too.
©2013-2014, The Idea Bucket. Submitted by Mikky.