Scotland’s Central Bank

If there is one thing we can bank on – pun intended – in this self-inflicted struggle to regain our democratic freedoms, being the butt of propaganda and jokes from soldiers of the British state is a certainty. When all else fails, telling us we are too poor to survive as a normal nation, is the colonial’s evergreen taunt. They succeed so well, our own folk repeat it as Gospel: our good neighbour saves us from perpetual penury. This myth has been sold to us for over 300 years. 

Not an exponent of economic intricacy, I try to seek economists who are not members of some creaky far-right colonialist club. I can avoid the fraudulent ‘Scotland in Union’, the academically woozy, racist ‘This Island’, or a flaky obscure think tank nothing more than a brass plate on a London door, a pin-striped suit paid by the Koch Foundation to spread lies and disinformation. Argument rebuffed by honest economists, the phony balonies return to the Darien Adventures as ‘solid’ proof of the righteousness of their argument, a time when, in fact, Scotland was far more prosperous than England.

Economists with nothing to gain who tell is the truth have my full attention, how Scots live in the wealthiest small country in the world. It is not unusual to hear that opinion. So far, all the best of them feel a central bank is a good idea, when independent again.

Every nation England overran in the name of the British Empire they pillaged while telling the population they were too poor and to  uneducated to fend for themselves. They deserved British rule. Now that our elected representatives have begun putting a Central bank together we should be prepared for the onslaught of falsehoods from our latter-day colonials along the same lines, a central bank will be useless to save us.

Next comes the lie that, without England offering funds – actually a portion of of taxes usually kept by the UK Treasury, Scotland would be sunk by the Coronavirus pandemic, and the same goes for any future virus. The liars have been gifted the best subject to exploit ceaselessly in a scaremongering list of scares- a pandemic.

To avoid straying into areas for which I have no expertise, I shall stick to the basics of a central bank, the pluses and the myths of our opponents. I shall try to make things easy to follow, for my own understanding, if not the reader’s.

Myth One – Currency

Let’s get out of the way clunky jokes about the name for a Scottish currency: Poonds, Groats, Bodles, Lowie, Bawbees, Folding Tartan, Smackeroonies- that’ll do for now!

Wealthy members of the European Union use the Euro – a currency system that has not hurt the Republic of Ireland. Smaller nations use their own currency. Attachment to a shaky pound leaves us at the mercy of interest rates levelled by the Bank of England. The bank is supposed to be politically impartial, but the old saying still holds true, when England gets a cold, Scotland get pneumonia. In other words, whatever is stuck upon unfortunate English to address their economic woes, will affect Scotland adversely.

If we get an antagonistic Tory chancellor, or find ourselves in loggerheads with England for a time, there is every reason to believe Westminster might burden Scotland with high interest rates to curb our influence and shrink our economy.

There was a long period where the Euro was worth more than the pound sterling, and that may well come around again from 2021 onwards, when the UK steps out of the EU leaving the UK’s economy on shifting sand.

Scotland does not have to join the Euro to be a member of the EU, only to ‘consider it in the future’. But while so many members have different economic agendas and GNP that fluctuate year-by-year, using the Euro might be hazardous in the medium to long term. We should look to Ireland for advice on this issue, not our colonial opponents. From the Irish I am prepared to listen for advice when, or if, to join the Euro. 

Myth Two – Epic Pandemic

In addition to closing our borders as an independent nation, using our own currency allows us to handle pandemics and epidemics suitably funded.

There is such as thing as a ‘magic money tree’, the hand-wringing lie that none exists exploded by Westminster when the Bank of England printed oodles of money to cope with the Covid-19 pandemic, and did it right in the middle of an artificial policy of austerity. You print what you need. The Bank of England has bought billions of gilts, providing the chancellor with a £20 billion of 0% interest overdraft on the Ways and Means account.

The state is the issuer and source of our money, thus making it impossible for it to run out. Politicians warn us daily, extra funds come off the taxpayer’s back. The taxpayer does not print money, the central bank does that job. We pay tax to the Treasury.

That aside, expect to hear and read the taunt about a pandemic killing off Scotland in more ways than one, repeated endlessly as we move closer to a referendum vote.

 Myth 3 – The Scottish Pound in Reserve

Another benefit of using our own currency goes unnoticed. Using the Scottish Pound on a daily basis offers the opportunity to be a voluntary choice. That means you can save in any currency. When you wanted to buy Scots pounds you could use existing sterling. The result of this policy means on the first day the Scots pound comes into existence it would have 100% foreign reserves backing in the form of the sterling we used to buy it.

I mention this because one of the great questions among voters in the 2014 Referendum was an understandable fear, if baseless, of losing the value of the pound sterling, Scotland left with a worthless Scots currency.

Scots are cautious about how they use their hard-earned cash. I am sure some folk will wait to see how a Scots currency fairs. Confidence is sure to rise as time goes by. As a ‘foreign’ currency, a Scottish currency is subject to foreign exchange rates. Economists argue, this is a good thing, because it takes it out of the control of the pound sterling.

Myth 4 – Foreign Reserves

When I first heard the idea of a ‘foreign’ Scots pound, backed by 100% foreign reserves, opponents claimed our currency would collapse, but they were talking about sterling, not about foreign reserves.

Our colonial masters invariable compare Scotland to their situation, whatever that is.

Myth 5- A Central Bank Needs Trillions of Start-Up Capital

Used to banks as monumental establishments, housed in big buildings with a multitude of stiff collared staff to run them, readers will be surprise how little a Central Bank needs to get up and running. A no frills, no gimmicks, no liabilities, basic Central Bank could open with as little as £20,000 in the kitty.

Beyond that there is the obvious, a few desks, telephones, a package for accounting software, connection to the inter-bank payment system, a receptionist, perhaps three staff for the initial year, a chairman, a board of directors (more on that later), and a brass plaque on the door. My private bank contacts tell me that really is it, well, maybe a coffee machine, and a filing cabinet.

All a Central Bank has to achieve is debit and credit the bank accounts of the Treasury and the reserve accounts of the commercial banks.  

Myth 6 – Deficits Are Bad

Shrill opponents are want to scream a deficit is a bad thing. If Scotland amasses one it will shudder to a halt. This is just so much baloney. No countries runs its economy on the basis of domestic home economics. If they did, bankruptcy beckons. All nations live on a deficit.

A deficit of anything from 5% to 10% is healthy. A deficit is an IOU from the state. A new Scotland will luxuriate in having no debts, almost unknown in the modern world, a great attraction for inward investment. I can see that being the situation in our formative years, as we rearrange the mechanisms of our democracy, and enlarge or amalgamate our institutions to suit our autonomy. 

Myth 7 – Interest Rates

Somewhere recently, I heard a Tory talk of the market helping to control interest rates. The interviewer did not question his opinion. A check in the pages of  ‘Basic Economics for Dummies‘ tells us the state controls interest rates, not markets. The state can borrow from its Central Bank by the process of ‘Quantitative Easing’, that magic money tree. 

Myth 8 – UK Assets Mean UK Debts

There is no law that states a ceding country automatically shares a proportion of the original state’s liabilities. Why? Because there is no law stating we have to accept a share of the assets. Do we really want a piece of the Falkland Islands? Have we not enough sheep of our own? If we refuse a share of rUK’s debts, we begin with no debt whatsoever.

The UK government under Cameron made plain it wanted to be ‘the Continuing State’. That is because England wants to keep its seat on the UN Security Council. Let it keep all it’s liabilities. Depending on the timing, Scotland will get £40 billion of Foreign Reserves automatically from the sale of the Scottish pound, on the assumption a low turnout sees folk convert only 40% of their sterling at the outset. (I see Twitter posts appearing from English nationalists jeering ‘if’, ‘but’ and ha ha, ‘maybe’.)

On Independence Day, Scotland takes back everything it owns, including all sources of taxation and all oils reserves. From that day on we build the nation that was once as economically independent as any other. Revenue acquiring institutions removed from us, such as the DVLA, we reinstate. The first two years will be a busy time reorganising our own affairs to suit our own needs.

If we join the EU, as many economists say we should to prosper, we will cede a little sovereignty to the EC – we lose a huge chunk to the UK currently – but that is the way of gaining trading rights. All nations are interdependent to some degree.

There is no record of a country that managed to extricate itself from the British empire taking a share of the UK’s debts. Ireland, still under England’s thumb, had money to pay back on loans it had taken out under Lloyd George’s Liberal administration, used for Irish tenant farmers to buy out their landlord.

Myth 9 – Small Countries Always Decline

Greenland is doing well, Iceland recovered from the ravages of the 2008 bank crash, Norway protected itself well, and Ireland bounced back in the face of English colonials calling it a basket case, as if their murderous rule of Ireland was not enough to subdue its ire. Scotland has truly vast sources of natural wealth, and is already proving it can be self-sustaining in renewable energy. Like Ireland, it will attract inward investment because it can arrange its own tax incentives.

True, there is urgent need to invest in the Highlands, and to reduce poverty in our main cities to a smattering of pocket areas, but falling apart at the seams is not a calculation. At the moment there is every indication our economy will contract severely, blocked from trade to Europe and trade to Ireland, relying entirely on the goodwill of England whose government has never shown financial kindness to Scotland in centuries. 

As for a sudden collapse, I turn to Richard Murphy, visiting professor in international political economy at City, University of London. He cites two eastern European states as examples of nations with far fewer wealth reserves than Scotland:

“Estonia became independent on 20th August 1991 introducing their currency 9 months later. They had no warning the Soviet Union was about to collapse. Slovakia set up a currency in two months after the planned shared currency with Czechia collapsed almost immediately (which is what would happen to any plan to share sterling!). Timing is not a problem then.”

Myth 10 -The Growth Commission Way

Everything I have written here is a repudiation of the timid, one step at a time, Tiggy Winkle proposals in the Wilson penned, Sturgeon championed ‘Growth Commission’. Only a few ardent fans refer to it still.

It was designed to make the ‘White Paper’ – a milestone in Scotland’s history – look misjudged and misleading. The White Paper still holds answers to questions persistently asked. We should refer to it more than we do.

Within weeks of analysis, the flaccid ‘Growth Commission’ looked timid and small-minded. But it did propose a Central bank. And that brings me to my final remarks before I step out of my understanding of  Scotland’s economic choices.

Just as in the past I argued a new broadcaster for Scotland should not be the old BBC Scotland with a new title and the same ethos, the same argument applies to a Central Bank. Pack its board of directors with old school bankers and inveterate gamblers gets old school thinking, the self-indulgent climate of ‘paying big salaries to attract the best talent’, a self-serving piece of arrogance is ever one was coined.

The names of the directors of the Scottish National Investment Bank (SNIB) have been announced. There is not a revolutionary among them. They are from the Dickensian school of fat bonuses and fatter cheque books. It does not bode well for a Central Bank. Employing flotsam and jetsam from the era of corrupt banking ensures they replicate the neo-liberal austerity guff they have been selling for the last two decades. 

Yours, in confidence

Scotland is famous for inventing any number of great things in the modern age. The age of the Enlightenment spurred on our ability to see things anew.

It is that adventurism based on science that propelled our economy, a sound one until we were dragged into an unwanted union. Our standing in the world back then was not because of over-weight bankers patting themselves on the back for acquiring another little earner with expenses. The intellectual causation of economic processes is the thing that saw Scotland prosper.

And this is a why a modern Scotland must be part of the world’s nations, exchanging ideas, not tied to one grudging partner, forced upon us and interested only in itself.

 

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NOTE

For information on how the Central Bank (Scottish Reserve Bank) should be organised, see website: https://www.reservebank.scot/news

 

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8 Responses to Scotland’s Central Bank

  1. Angry Weegie says:

    Reblogged this on Angry Weegie and commented:
    Like Grousebeater, I too am not an expert economist, but, as he has done, I can look at examples from other countries of how easy it is to set up a Central Bank. The UK government tell us that it will be extremely difficult and that we will have no assets. Not only are both of these statements wrong, but given the UK government’s history of lying about everything connected to Scotland, why would any Scot even think of believing them. Read an enjoy the myths being trashed. Perhaps this should be put on a leaflet.

  2. twathater says:

    Thanks for this GB and Angry Weegie no perhaps about it , it should be put on a leaflet accompanied by Scotland’s resources which the SNP SG have failed to do FOREVER, IMO the SNP including in AS time failed miserably to convince the Scottish public that WE were WISE enough, Big enough, and Rich enough to succeed, even today it is left to individual indy supporters to garner information and print it to show US Scots how we’re being robbed.

    FFS the SG have NEVER EXPOSED the lies of GERS even although they PROMISED too

  3. alisonscot says:

    I agree with the others. This should go out in a leaflet so that canvassers can leave with any household who needs information on economic matters. I especially agree on the board of directors of the bank not being ‘old school’!

  4. Muscleguy says:

    If we let the clearing banks continue to issue script on condition that they deposit Scot£1 for every Scot£ issued in our Central Bank. Which means they will withdraw the billions on account in Threadneedle St and simply move it. Caching! one capitalised Central Bank.

    By never denying our banks the right to issue banknotes we have a ready made Central Bank capitalisation fund. If we want we can insist they deposit UK£1 for every Scot£1 they issue but sterling is likely to tank when our oil, gas, fisheries, whisky duties, strategic position leave the sterling zone so that one could profit the banks big time.

    Commonweal have done good work on a Central Bank including the recommendation that we initially peg it not to sterling but to a basket of relevant currencies. Something like Sterling, Euro, Norwegian Krone (with appropriate divisors). We do this to avoid the Soros like currency speculators testing us while our foreign reserves are low.

    Over time trade will bring foreign reserves. Then when we are strong enough. We float it. Note the peg level can be adjusted to better suite economic conditions. It won’t be set in stone.

    I grew up in NZ with the NZ$, a Scot£ does not look a problem to me. NZ would kill for Scotland’s oil and gas reserves. Scotland would kill for NZ’s fisheries. NZ would kill for our industrial base and heritage. Though they do have a native steel production, using ironsands. NZ would kill for our proximity to European markets. Australia is 3hrs flying time just to the Eastern seaboard. Only relatively close.

    Scotland will thrive. Our currency will do well. I suspect the problem will be stopping it becoming too strong and hurting our exporters. But that can be managed by the Central Bank.

  5. indyref2soon says:

    Good article!

    Wee correction – “names of the first directors of the Central Bank …..” (Corrected).

    I fully endorse your comments on the appointments to the SNIB board.

    For information on how the Central Bank….. (Added as a footnote).

  6. Grouse Beater says:

    Noticed the hiccup this morning, But much obliged just the same. Have added the link. 🙂

  7. Hugh Wallace says:

    Like Muscleguy, I also grew up in New Zealand. Scotland’s economic potential is a magnitude of more in advance of what my other homeland can ever hope for. I don’t see the kiwis looking to rejoin the British Empire any time soon…

  8. Phil says:

    Good post! Compiled into one or two or four leaflets for doorstepping would be very useful. The TS-TP-TS syndrome hangs like impenetrable fog. It is NOT impenetrable. We can still be enlightened. We can still be leaders in the world of smaller nations. But only when independence releases our energies.

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