A Silver Chain – A Critique of the Sustainable Growth Commission’s Monetary Policy Recommendations

Common Weal Policy

Scotland needs its own currency on day one of independence

COMMON WEAL has intervened in the debate surrounding Andrew Wilson’s Growth Commission by offering a substantial critique to keeping the Pound Sterling post-independence.

Read the report here

The currency option laid out by the growth commissions report, known as “Sterlingisation”, would leave Scotland beholden to UK financial markets and with no control over interest rates, no ability to directly create money or set targets on metrics such as inflation or balance of trade.

This means that financial markets would be set a premium on Scottish Government borrowing with the knowledge that an independent Scottish Government would not have the same levers to finance its debt as other countries with their own currency. This would act to severely discipline the Scottish Finance Minister so that they may always have to put banks interests ahead of the people’s.

Sterlingisation outside of a formal currency union, also means that the Bank of England would be under no obligation consider the effect of its decisions on Scotland’s economy. (However, Common Weal argues that with an independent Scotland having a potentially different relationship to Europe than to England and Wales, a currency union is also not desirable.)

The six key tests outlined by the Growth Commission, for setting up a new currency after independence, actually hinder the ability of the Scottish Parliament to set up a separate currency in the future. Contrary to unofficially accounts from members of the commission in interviews, the Growth report offers no timeline to the transition to a Scottish currency.

Common Weal recently completed their own blueprint for Scottish independence, How to Start a New Country and proposed a three year transition period between a referendum and independence, while mapping out the process for setting up a Central Bank, currency and the other essential institutions.

Initially pegged to the pound, an independent Scottish currency would be able to adapt quickly to a change in economic circumstances such as a positive divergence from the UK’s economy, offering the vital flexibility that Sterlingisation would lack. With the UK’s economy overly dependent on London’s volatile financial sector, it is in Scotland’s interests to build a sustainable economy which Sterlingisation would make much more difficult.

[The purpose of Common Weal’s report is to specifically critique the report produced by the Growth Commission it is done so in the spirit of the principle laid out by the First Minister on the latter’s publication. If the Growth Commission report was produced to be discussed, then this report seeks to add to that discussion by highlighting what we see as the shortcomings of its findings and how they can be corrected. Common Weal’s alternative blueprint for setting up an independent Scotland can be read for free here]