Ben Wray: A Scottish currency to deliver full employment should be new independence clarion call

Ben Wray, Common Weal head of policy, argues that the independence movement needs a completely new economic agenda which throws out deficit-obsessed economics and prioritises a Scottish currency to deliver real full employment

THE yes movement, and the yes case, is in a malaise and in dire need of an injection of new ideas and energy.

It’s hardly necessary to waste time justifying this statement, one just has to log-in to Twitter and bear witness to the movement eating itself (I’d recommend not bothering…).

Animating this unedifying scene are short and long-term problems of far greater substance.

Short-term, it is not clear what the next step is as Nicola Sturgeon has effectively parked the issue until Brexit has worked itself through and we find out the lay of the land, both constitutionally and in the court of public opinion.

Long-term, the Yes case of the 2014 white paper is now severely out-dated as the world has moved on in the past three years. Plus, there is now an existential threat to the idea of independence being the natural home for those of a social democratic hue in the form of a revived Labour party under Jeremy Corbyn.

“None of this is necessarily catastrophic, but it could be if we don’t make use of this dip to renew. As Churchill said, never let a good crisis go to waste.”

None of this is necessarily catastrophic, but it could be if we don’t make use of this dip to renew. As Churchill said, never let a good crisis go to waste. The present situation is an opportunity to throw out some bad ideas from last time and introduce better ones.

With that in mind, economist and tax expert Richard Murphy’s article in the National last week is a good starting point. Murphy makes four substantial points:

  • Government spending through Central Bank money creation is what puts money into the national economy, which then allows tax to be paid. Tax retrieves money from the economy to prevent inflation, meet social and economic goals and verify the worth of the currency, but no government with its own currency needs money from tax to spend.
  • This is because a government with its own currency can never go bankrupt as it can, without cost, produce more money, and thus is the sole bearer of net financial assets. Those who say governments rely on government bonds to finance the national currency are wrong as the government money creation process is independent of this. If speculators attempted to attack a currency through devaluation governments can now always use quantitative easing (QE) to protect their currency, which in effect is the buying back of government bonds using new money it has created for this purpose.
  • What this means is that the notion of government needing to ‘balance the books’ through austerity or tax rises so that it’s revenue and expenditure is in balance is “completely unnecessary”. The real limits to spending is not how much money a government has but to what extent it can put that money to work by making productive use of the country’s human and natural resources.
  • For an independent Scotland, that means that: a) an independent currency and central bank is absolutely indispensable. It is not possible to call a country properly independent and sovereign without its own currency. b) If Scotland does have its own currency, fear over a large budget deficit is totally misplaced. A prospective budget deficit is not a key indicator for assessing Scotland’s potential to be independent. c) Our assessment of economic performance should be to what extent are we maximising our human and natural resources, with one obvious aim being full employment.

The implications of this are profound. I have argued in this column previously that the greatest success of George Osborne and co was to convince us of a big lie: that the Great Recession in 2008 and its aftermath was a problem of government deficits, and that the basis for future economic stability is government surpluses.

In brief, the crash was actually caused by the excessive weight of private debt in the economy, most spectacularly in the US housing market. Since then the drive for government surpluses through austerity has sharply reduced the ability of the economy to recover as demand is sucked out, while creating a new build up of private debt all over again, which in turn drives greater inequality and greater control of the economy by parasitic elements - banks and rent-seekers – which acts as a dead weight on productivity, which (along with under-employment) puts a downward pressure on wage growth.

We should understand the potential ramifications of Murphy’s argument in this context of austerity-driven economic stagnation: it doesn’t have to be this way in an independent Scotland, but only if we have our own currency and unleash its full power to re-balance the national economy. It should be pretty obvious that this is a long way off the argument made in the Scottish Government’s 2014 white paper, which worked within the neoliberal paradigm of balanced government budgets and proposed a monetary union with the rest of UK with Scottish representation on the Bank of England’s board.

“We should understand the potential ramifications of Murphy’s argument in this context of austerity-driven economic stagnation: it doesn’t have to be this way in an independent Scotland, but only if we have our own currency and unleash its full power to re-balance the national economy.”

Since then oil prices have fallen, increasing an independent Scotland’s prospective budget deficit, and the UK is leaving the European Union, making a monetary union unfeasible. The 2014 argument can therefore no longer be sustained, but neither should it be – it was based on an entirely unambitious prospectus that would have trapped an independent Scotland within the UK’s City of London-dominated macroeconomic framework.

If you still have any doubt about the dangers of monetary union I would suggest picking up a copy of Yanis Varoufakis’ memoir Adults in the Room as a blow-by-blow case study of how a country can be impoverished on mass if it does not control its currency and central bank. The European Central Bank and its client, the Central Bank of Greece, were weaponised to create and fuel a bank run on Greece’s banks during the stand-off between the Syriza-led Greek Government and the Eurogroup. Starving ATM’s of cash for a week – the very opposite of what a Central Bank is supposed to do – the ECB left Varoufakis, the Greek finance minister at the time, struggling to keep the Greek economy on life support.

“It is both absurd and lethal for a Finance Ministry to lack the support of its central bank,” Varoufakis states. “One of the absurdities during that awful week, as we struggled to make very little liquidity last as long as possible, was that I did not even know how much liquidity there was in the system.”

It would be naïve to assume that there could be no circumstances in which this could happen to an independent Scotland at the hands of the Bank of England.

But neither is Sterlingisation a credible alternative to this – while Scotland using the UK currency independently of the rest of UK would allow for a degree of flexibility, key aspects of monetary policy – most importantly monopoly over money creation - would still be dictated by London, drastically restricting the scope of actions Edinburgh could pursue to those within the limits of the rUK economic model.

Only a Scottish currency fully controlled by a Scottish Central Bank could allow an independent Scotland to utilise its currency to maximise its national resources. What does this mean in practise?

“27.5 per cent of of working age adults in Scotland are either unemployed or economically inactive, with an additional 10.3 per cent estimated to be under-employed – in part-time work who want to be in full-time work. That’s over one-third of the potential workforce under-utilised.”

Let’s just think about two ways in which Scottish resources are currently under-utilised – unemployment and Scotland’s renewable energy capacity. 27.5 per cent of of working age adults in Scotland are either unemployed or economically inactive, with an additional 10.3 per cent estimated to be under-employed – in part-time work who want to be in full-time work. That’s over one-third of the potential workforce under-utilised. There is also a huge amount of untapped potential capacity for renewables in Scotland. Here’s a breakdown of Scotland’s existing renewables usage verus potential (as of Q3 2014):

- On shore wind : existing 4.9 GW; potential 11.5 GW

- Off shore wind: existing 0.2 GW; potential 25 GW (likely to increase)

- Hydro: existing 1.5 GW; potential 2.7 GW (mostly small or micro)

- Tidal: no existing; potential 7.5 GW (25 per cent of EU)

- Wave: no existing; potential 14 GW (10 per cent of EU)

- Solar: existing 0.15 GW; potential unclear but much more

- Total: existing (excl nuclear) 7.1 GW; potential over 60 GW

Unquestionably, this is a huge amount of untapped human and natural resources. There is no reason why new Scottish pounds could not be created to increase the supply of jobs in the renewables sector, which would in turn expand the economy, creating its own tax returns. Renewables is just one sector where there is plenty of ‘slack’ in the Scottish economy – whether it be social care or house building/renovation there is no shortage of tasks needing done that are either not currently being done or not currently being paid for.

This could be most efficiently organised through a government Job Gaurantee Scheme – anyone who wants work would get a guarantee of a job offer from the government scheme, working closely with the Central Bank. Every time a new job was created, new money would be created to fund it. (I have discussed how this scheme could work in more detail, including in collaboration with a Universal Basic Income, in a previous column.)

“The idea would be to create real full employment, i.e. not the punitive, fake full employment the UK Government is trying to create through pushing people into taking up what anthropologist David Graeber has called ‘bullshit jobs”.

The idea would be to create real full employment, i.e. not the punitive, fake full employment the UK Government is trying to create through pushing people into taking up what anthropologist David Graeber has called ‘bullshit jobs’ – agency work, zero-hours contracts, temporary work, a few hours a week self-employed etc – which is largely based on creating incentives in the welfare system to declare oneself employed to access tax credits and other benefits.

Real full employment would involve the Job Gaurantee Scheme being competitive with private sector pay and conditions, rather than undermining existing pay and conditions as Workfare does. The impact of this on the labour market would be profound – distributional struggles between capital and labour would immediately shift more in favour of the latter, as was the case when there was nearly full employment in Britain in the long boom after the second world war. Real full employment creates optimal conditions for tackling inequality.

A vision of an independent Scotland with its own currency that is mobilised to put everyone in Scotland into fulfilling work aimed at making the most of the country’s abundant natural resources is one that inspires me. For it to be credible it requires an all-out attack on deficit-obsessed economics and the establishment of a whole new set of criteria for economic performance. Fundamentally, it requires an understanding that a country with its own sovereign currency is limited in its economic development not by how much money it has, but by how effective it is at putting money to productive use.

Photo courtesy of Kurtis Garbett



Tue, 08/08/2017 - 13:38

What does it cost for a prosperous Northern European country of around 5 million people outside the Euro, sharing a border with a much larger currency area with which it does the preponderance of its trade, to run its central bank? The real world example of Denmark says 55 billion pounds.

This is why the heads of the independence movement are unwilling to promote the idea. It would be an acknowledge that the price that the average Scot would have to pay for independence is far, far higher than they've ever let on.

Andrew MacGregor

Tue, 08/08/2017 - 14:18

Hi Ben,

Scotland already has a distinct currency. We have it printed under licence currently (from the BoE). The currency itself is treated within the rest of the UK as distinct.

During the process of moving from devolved to fully independent from the UK, we would as a country be entitled to a share of the following.
1. Foreign Exchange Reserves
2. Cash Reserves
3. Gold Reserves
4. Assets held by the BoE for the UK.
This gives a starting foundation for setting up a Central Bank and investment system. It will underpin the currency and will allow the use of bonds, allow borrowing and allow QE liquidity changes.
We need not follow the BoE model for CB function, but use a ready made model from other small nation states that operate within or on the periphery of the EU. These include Denmark, Norway, Switzerland and Czech Republic. A combination of Denmark and Norway models may be more appropriate of course as they reflect similar economic models available to Scotland.

As for the under-utilised resources available to the Scottish economy, they are many. I agree with the ones you raised but would add water, underemployment and yes even shipbuilding to that list.
Scotland is a nation rich in resources held back by a feudal economic model which focuses wealth and growth around large populations and where the wealthy dictate. A new model of growth would have to include regeneration of rural economies including infrastructure, public transport and education. Investment in research, including incubator investment is a necessity.


Tue, 08/08/2017 - 14:35

That Denmark should be a model seems obvious, given the number of points of similarity:
*geographic location
*# of major partners in common with Scotland
*outside the Euro
*shares a border with a larger currency with which it does the preponderance of its trade, which is the position Scotland would have relative to sterling.
In fact, I would go so far as to say that indy Scotland's first central banker should be someone with senior experience within the Danish system.

But if you are a campaigner for Scottish independence, there is a small problem with this real world model: it is very inconvenient, for the reason shown in the graph in this link:
It rather lets the cat out of the bag: independence is going to be vastly more expensive than first Salmond and now Sturgeon are willing to admit publicly.

DrDalzell's picture


Tue, 08/08/2017 - 16:10

Of course, Maurice, you will also have read the paragraphs immediately above that graph to find the reason for Denmark's remarkably large pot of foreign reserves. The krone has been under a strengthening pressure for some time as investors have been moving money out of the Eurozone. To counter this, the Danish bank has been selling krone and buying foreign currency (you may recall a recent story that Denmark had paid off all of its foreign denominated debt. This was the result of them recycling some of that foreign currency. They can't do that any more so it now just builds up in reserves).
It didn't cost Denmark the equivalent of £55bn to form a minimally stable reserve. Their reserve grew to $55bn as a result of normal, prudent macroeconomic policy in the face of positive sentiment.

I shall take it as a sign of your utmost confidence in the economy of an independent Scotland that you believe that the £Scot would come under similar strengthening pressure as investors attempted to buy it as quickly as they could, shall I?


Tue, 08/08/2017 - 16:30

Holding onto more in reserves than is actually needed is terrible policy - the money could be used for more productive purposes, and instead, it will just be whittled away by inflation. So if Denmark obviously did not need £55bn in reserves, its central bank would not be sitting on such a pile.

What is a "minimally stable reserve"? I have never encountered this concept before.

I fear it is "the smallest number we can muster a defense for and therefore not frighten people".

Swings in the value of the £Scot in either direction vis a vis sterling would be damaging for Scotland's producers.

Which is why these attempts to convince people that Scotland could somehow do it on the cheap are doomed to fail.

It is also why first Salmond and now Sturgeon refuse to talk about an independent currency for Scotland.

Scott Egner

Tue, 08/08/2017 - 18:35

Denmark by choice maintains a currency peg to the euro hence it's need to accrue foreign currency.
They would be better floating.


Tue, 08/08/2017 - 18:45

And independent Scotland would, similarly, want to maintain a currency peg to sterling and hence would also need substantial reserves to defend that peg.

It is true that some separatists who understand just how expensive a peg twould be argue that the new currency should be floating instead. However, that is not because that would be the best policy. It is because they want the currency issue to go away.

Scott Egner

Tue, 08/08/2017 - 20:10

It's incredibe how people cling onto the great great UK.
A ponzi economy successive govts chose instead of investing in its export capacity.
An economy dominated by bank IOUs created for asset inflation to indebt it's population - the rentier economy. Not one based on wealth but on personal debt. Of course treasury economists still see banks as intermediaries rather than money creators (they lack the knowledge of how the economy they favour actually works)

Someone recently mentioned a joke. There was a soldier, sailor, and neoclassical economist on a desert island.
The soldier said "I'll gather wood".
The sailor said "I'll catch food"
The neoclassical economist said "let us assume there is a supermarket"

Economies come down to acquisition of energy and resources - not that this registers in the neoliberal collective neuron.

John S Warren

Tue, 08/08/2017 - 20:15

As far as I understand Richard Murphy's position he advocates a floating exchange rate. What is the point of discussing a peg? What is the point of advocating a peg? Please spell this out.

John S Warren

Tue, 08/08/2017 - 20:31

"And independent Scotland would, want to maintain a currency peg to sterling". (Maurice Bishop)

Please provide your precise reasons for this statement; not what "some separatists" think (that is second-hand, and better dealt with elsewhere); but what are YOUR reasons for maintaining a sterling peg?


Tue, 08/08/2017 - 21:53

I don't know or care if Richard Murphy advocates a floating exchange rate. He is a tax accountant, not an economist.

A floating exchange rate, especially in the early years of independence, is out of the question. You would never get a majority of Scottish voters to back independence if there is even a suggestion that it is on the cards. Because exchange rate swings in either direction vis a vis sterling would damage Scottish producers.


Tue, 08/08/2017 - 21:52

Thank you, Scott Enger, I enjoyed the sight of a Scottish separatist suggesting that other people are inclined to invent their own realities!!!

John S Warren

Tue, 08/08/2017 - 21:59

Every floating exchange rate faces the same conditions of existence. You will require to prove your prediction that it will uniquely damage Scottish producers. That statement is not evidence. It is only marginally an opinion. In addition your speculation about Scottish voters intentions is not accountancy, nor economics, but guesswork. If we are going to examine the credentials of disciplines scrupulously closely, I think you may find you are skating on thin ice.

So far I can see a lot of idle speculation in your argument, few facts and little substance. Can you please provide some substantive, concrete evidence for your speculations?


Tue, 08/08/2017 - 22:21

Nothing "uniquely" about it. "Uniquely" doesn't enter into it. "Uniquely" is something you are introducing to circumvent a reality that you find inconvenient.

John S Warren

Tue, 08/08/2017 - 22:37

You are uniquely circumventing the reality of answering straightforward questions. You have heard of "evidence" I presume? Facts? Your comments will not do; they simply do not 'cut the mustard'. Time to shape up .......


Wed, 08/09/2017 - 00:53

Good lord, what nonsense.
Just as one example how this would harm Scots ; every time you printed more money to spend more money, devaluing the new Scottish currency, you would make people's existing Sterling liabilities (from business loans to mortgages) *which would still need to be paid back in GBP* less affordable.

You would almost instantly put most homeowners in Scotland into negative equity, causing their homes to be repossessed by what would now be foreign mortgage lenders.

Exactly what happened in many euro countries where people thought they would be clever by taking out mortgages in CHF Swiss francs, it was all fine until the Euro devalued and their mortgage payments shot up overnight.

That's just one of many, obvious, reasons this would be a disaster.

I hope to goodness they don't pay you for this rot.

Scott Egner

Wed, 08/09/2017 - 07:31

If you want to keep using the word seperatist maurice then there must be an admission that you're one yourself. You're obviously n the camp of of small minded euro-xenophobia.
'We'll get what we want because we are British' - mass delusion.

As for 'reality' you follow a fantasy that is neoclassical economics which doesn't describe the real economy. The mass group think of 'the economy is like a household' is still preached by the economic high priests and devoured by the flat earthers.

Seperatist little Britain the great of course will be paying it's EU exit bill yet out of principle will not be buying scottish imports - out of principle you know. It will substitute all imports including energy cause, well cause Britain is great and doesn't need energy. It can park it's subs somewhere for free! It can keep the 6000 square miles of scottish territorial waters it confiscated - for free.!
It can have the cake and eat it!

Mike Fenwick

Wed, 08/09/2017 - 08:04

Treat DontSign as making a relevant point ... but transfer that point to where we are now, namely facing the unknowns of Brexit, with Scotland remaining part of the UK ... is that by virtue of dimension and even greater disaster? According to the Bank of England it may well be, I won't use the whole of the most recent conclusion of that contention, but an extract. Perhaps a Scottish withdrawal from any such disaster through independence might be the smart, not foolish, decision?

This is the extract:

Financial Stability Report
June 2017|
Issue No. 41

Extract is from Box 2

There is no generally applicable institutional framework for cross-border provision of financial services outside the European Union. Globally, liberalisation of trade in services lags far behind liberalisation of trade in goods. So without a new bespoke agreement, UK firms could no longer provide services to EEA clients (and vice versa) in the same manner as they do today, or in some cases not at all. This creates two broad risks. First, services could be dislocated as clients and providers adjust. Second, the fragmentation of service provision could increase costs and risks.

In the United Kingdom, the flow of new banking and insurance services to UK customers could be disrupted if EEA firms are unable to operate in the United Kingdom in the same manner as they do today. Around 10% of the outstanding stock of loans to private non-financial corporations in the United Kingdom is extended by UK branches of EEA banks. (3)

Around 7% of general insurance contracts undertaken in the United Kingdom and 3% of life insurance contracts are written by EEA insurers. As well as disrupting new business from these providers, fragmentation could require the existing contracts to be transferred to a UK-authorised firm in order to address any legal uncertainties as to the status of, and ability to perform, such contracts. (4)

John S Warren

Wed, 08/09/2017 - 09:03

The "valuation" (or devaluation) of a Scottish currency, of which you write, requires you to establish evidence on which you make the assumption about its value (money is already printed by banks, which are not intermediaries). I am making no assumptions about a Scottish currency because I am simply asking the relevant questions.

Your point about private debt is well made, but this does not give you the freedom gratuitously to provide assertions, speculations and guesses about currency valuation as facts (hyperbolically dressed in exaggerated language). If you have a point to make about currency valuation provide the evidence, the facts and the argument.

Scott Egner

Wed, 08/09/2017 - 12:13

The point about private debt is valid.
Firstly for business loans, well they represent the minority of loans - 8%. Most bank money creation was for speculative purposes and to inflate the property market - the thatcher, Blair, Brown dividend leading to the absolute mess we are in now.
Of course you make two assumptions - 1 that the rw currency would devalue (agree only in the short term), 2 - implicit with your point seems to be that the £ value will hold? Don't see that at all.
Taking away the resource potential from London will most certainly affect the pound. This is why cooperation is soo important between the two countries.

I've mentioned the private debt issue on other forums and i believe there are other ways to deal with this other than having to defend a peg.

The Scottish govt could request that banks wishing to trade here that the loans are redenominated in the new currency. Of course you have to educate the mainstream which still believes banks are intermediaries rather than money creators. Just look in an economics textbook. This would involve the two central banks of course.

Alternatively Scottish govt could guarantee the loan in £s and charge the debtors at a fixed rate in the new currency. Probably over time this would benefit the Scottish govt as the currency strengthened due to our potential export capacity.

So certainly private debt should be high on the agenda but there is no independence campaign yet. It's mostly the tory tank commander's obsession


Wed, 08/09/2017 - 15:05

@Scott Engner
"If you want to keep using the word separatist maurice then there must be an admission that you're one yourself."

You use rhetoric like this then marvel that a majority of Scots don't rally to your cause.


Wed, 08/09/2017 - 15:07

@ Mike Fenwick:

"but transfer that point to where we are now, namely facing the unknowns of Brexit, with Scotland remaining part of the UK ... is that by virtue of dimension and even greater disaster?"

No. Not even close.

The two problems with the case for independence are the inability of those advocating it to deal convincing explain how post-independence Scotland will deal with the structural deficit and the currency issue. Brexit doesn't nudge either of them one way or the other.

"What about Brexit?" is just whataboutery.


Wed, 08/09/2017 - 15:13

@Scott Enger
"The Scottish govt could request that banks wishing to trade here that the loans are redenominated in the new currency. "
And what if they say "No". In fact, what if they say "No, we won't do that, we can't do that, it would violate out fiduciary duty to our shareholders" during the campaign, so that voters know that this is not going to happen?

Well, just like in the currency union debate, the separatists will claim they are bluffing.

We won't find out what a debacle we have gotten into until it is too late, because the separatists simply waive away all inconvenient facts and pretend they don't have to be incorporated into planning.

"Alternatively Scottish govt could guarantee the loan in £s and charge the debtors at a fixed rate in the new currency."

Mike Fenwick

Wed, 08/09/2017 - 16:38

Hi Maurice ... you do realise you are arguing with the Bank of England in your response, and specifically with that FPC report, if you feel they have got it so wrong you can e-mail them. Wish you luck!


Thu, 08/10/2017 - 09:17

This is all rubbish. 'A gov with a central bank can't go bankrupt because they can just print more money'? Are the people who write this really so uninformed?

All the governments that have gone bankrupt in the last 40 years went bankrupt because they printed so much money it became valueless.

Weird article. If this is Commonweal, someone needs to get a grip.

Mike Fenwick

Thu, 08/10/2017 - 10:01

A date for your diary ... sometime in October this year, when the USA will face Congress will debate whether its debt ceiling is to be raised or not.

Want to watch the possibility of the USA defaulting on its debt, you only have approximately 2 months to wait.

Tricky subject this currency thing, and if it is your thing, in a few months it could be fascinating.

Andrew MacGregor

Tue, 08/15/2017 - 09:56 it makes sense.

The idea of an independent Scotland scares you so much means you simply cannot give an unbiased opinion on currency, CB and fiscal autonomy.

Not only can Scotland peg to the rUK pound, it can simultaneously peg to others. It's known as a basket of currencies.

The great piece of news of course is that Scotland - to answer Egner's point, is that Scotland would of course have access to foreign currency through trading with rUK, EU, USA with commodities that can be sold in all three.

Sadly, the idea of it being more costly to trade with the rUK with a new currency, is as species as it can be. Time to man up Maurice, put away your petty fears and become part of a fair, wealthy small country.

Andrew MacGregor

Tue, 08/15/2017 - 09:58

Except, 41 years ago, the Labour Party bankrupted the UK without printing the money...strange eh?

Andrew MacGregor

Tue, 08/15/2017 - 10:00

What 'structural deficit' are you referring to Maurice?
Th currency issue is easy. It is simply that no argument that is made will satisfy you. You are only interested in the status quo.

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