At the SNP’s recent spring conference, party delegates voted against the wishes of the leadership to ditch a policy held since the 2014 referendum – that post-independence, Scotland would keep the pound. Having been accused of playing down the significance of the policy change, a spokesperson for Finance Secretary Derek Mackay told Spotlight: “Scotland will keep the pound immediately after independence. The SNP’s policy is to make a managed and responsible transition to an independent currency, only when it is safe, secure and practicable to do so.”
Speaking from the podium of the conference, delegate Timothy Rideout advocated what he described as “real independence”, or full monetary sovereignty. “The fact is that if we use sterling, our monetary policy, that’s the interest rate, the exchange rate, the money supply and the inflation rate will all be set in London, and our scope for fiscal policy, what we tax and spend, will be limited,” he told the hall. “Worse, there will be no lender of last resort in Scotland and no viable insurance of bank deposits… If we are ‘sterlingised’ and there is a financial crisis we won’t be unable to do anything about it. We’ll be grovelling to the Bank of England asking for a bailout.”
It’s a lesson that southern Eurozone economies learned the hard way. Without its own central bank to couple fiscal retrenchment with monetary expansion, and with a currency that was unable to depreciate to regain competitiveness, Greece was left at the mercy of the European Central Bank after 2008, and its economy contracted by around a third.
With the first period after any vote for independence likely to be characterised by business uncertainty and market volatility, Nicola Sturgeon would do well to embrace her party’s new policy, rather than resist it.
In 2008, Northern Rock received emergency liquidity from the Bank of England, borrowing £3bn in the first days of the financial crisis. Around a year later, Lehman Brothers filed for the largest Chapter 11 bankruptcy in US history, shaking financial markets around the world.
In July 2007, just before the beginning of the crisis, interest rates in the UK stood at 5.75 per cent. By March 2009, in the wake of the chaos, the Bank of England has slashed them to 0.5 per cent. To stop cash machines running dry, the UK’s banks were shored up by a £500bn rescue package, which included £200bn in loans from the central bank. Since 2009, the Old Lady of Threadneedle Street has injected £435bn into the economy through quantitative easing.
None of this would have been possible had the UK not enjoyed the benefits of its own central bank and its own currency. Without expansionary monetary policy to stimulate demand, the last recession, which has been followed by years of anaemic growth, would have almost certainly turned into a long depression, and could even have led to the collapse of capitalism itself.
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