Miscellany - odds & ends
These are some of the thoughts & background which inform the choice of a National Currency for Scotland. Ronnie Morrison
No country is an island in terms of international trade and finance and any government which ignores the basic need to balance its exports and imports is guilty of criminal incompetence. The realpolitik of a nation in debt to others is little different from personal debt and the fact that a nation cannot go bankrupt in terms of its own currency does not mean they do not remain physically in debt to foreigners - and that does have moral, political and economic consequences.
Quite apart from the familiar crises we experience every few years, financial sanctions are increasingly being used to influence domestic political decisions. Most recently this has impacted Turkey but the list is substantial including Russia, Iran and Greece. More generally, the neo-liberal formula for financial stability consistently exercises financial dogma as the basis for privatisation, austerity and reduced public investment. Again any government unaware of these influences or unable to counter them will fail the people it represents.
The clear exception to this rule is the United States dollar which is the de facto world reserve currency - not because of the strength of its international balance sheet or unquestioned moral authority, but because of its economic and military power. That is realpolitik and nothing to do with the logic of a balance of payments.
The question is can this reality be challenged by some more natural and rational reserve currency? Gold was the basis of a reserve currency up until 1971 when the US dollar moved off the gold standard but the hard fact is that the dollars reserve status dates back to the end of WW2.
At the Bretton Woods conference of 1944 the British economist J.M. Keynes proposed Bancor as a new world reserve currency – in effect an accounting system which recorded international trade balances and imposed interest penalties to Nations which were either in surplus or deficit – i.e. a sanction which would oblige them to readjust their currencies to values which would encourage a balance of trade.
That did not appeal to the US negotiators as the dollar was in a large trade surplus with the rest of the world and was also linked to the price of gold. Back then realpolitik again won the day.
It’s interesting however that the Governor of the Central Bank of China, which is currently in a huge balance of payments surplus and has a large stock of gold, takes a different view. He has proposed that the IMF should adopt a similar system and both the IMF and the United Nations believe these principles should again be examined in greater detail.
There is of course no indication that the United States would willingly give up the immeasurable advantages of being a reserve currency. However there are suggestions that the new technology of bit coin and the block chain ledger accounting system could present a new way of doing the same job with the US liked it or not. The system appears to be invulnerable to attack or interference.
At present international trade is controlled by the transferring of funds through private banking agencies like SWIFT (and others) which is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. The US government has intervened in it to enforce sanctions against Russia & Iran.
It is with these and similar considerations in mind that the proposal is to launch the Scots pound is a purely domestic currency not available to international money markets and using dollars and euros and sterling etc. to conduct our imports and export business. This, together with using full reserve banking regulation and Central Bank supervision of accounts and foreign exchange resolves the initial vulnerabilities of the new currency.
There will be no significant legacy of a share of UK National Debt which of course is largely incurred as a result of the fractional reserve system and any new borrowings required to finance imports will be modest. These will be the only “external” borrowings to be secured on government bonds.
This strategy for a Scots currency renders it secure yet flexible to accommodate whatever the future may hold in terms of international trade and financial arrangements.
It is for the reader to decide if this is a radical or a rational monetary policy but this is not a decision purely for expert economic advisors and bankers (remember sharing the pound in 2014). it is a matter for popular sovereignty and literally every citizen of voting age in Scotland will have their say on this and every other matter concerning the Constitution of Scotland. If we are to protect our democracy then each one of us must participate.