Iain Macwhirter argues that "everyone knows" that not having a sterling currency union post-independence would be, in the words of Glasgow University vice-chancellor Anton Muscatelli, "tantamount to economic vandalism".
However, the case made for continuing with a sterling zone post-independence is based on the economies of Scotland and the rest of the UK (rUK) post-independence being as convergent as they are today. That won't be the case.
If the Scottish Government is correct, and an independent Scotland can carve out its geographic share of North Sea oil, then it will become a net exporter of hydrocarbons and rUK will be a net importer. This means that an independent Scotland's competitiveness will change (in layman's terms, its inflation rate will be changing at a different rate with respect to its competitors' rates), having important implications for its non-oil sector. In the limit, such competitiveness changes will crowd out the non-oil sector if they are not dealt with using the appropriate macroeconomic instruments.
Of course, as part of a monetary union, an independent Scotland would not have the ability to tackle these differential inflation rates using monetary policy, including adjusting the exchange rate, and the non-oil sector would have to take the brunt of the adjustment through changes to employment and output. To appropriately deal with these shocks, an independent Scotland would need to have its own currency and some form of managed float along the lines of how the Norwegian krone is managed.
The idea that a rUK Chancellor is able to stop an independent Scotland issuing its own currency at a fixed rate is also fallacious. However, no form of fixed-rate currency system would be a tenable economic solution for an independent Scotland, and any attempt to impose such will quickly be unwound by financial markets at great cost to Scottish taxpayers, particularly if a rate of one to one is chosen.
Although one may take issue with the manner in which Westminster politicians have delivered their message on the currency issue, at least it has been delivered with clarity and honesty on behalf of UK taxpayers. One wishes the same clarity and honesty on this issue was provided by the Scottish Government to the Scottish electorate. Failure to grapple with this key issue will result in "economic vandalism" to the Scottish economy of a very high order.
Ronald MacDonald
Adam Smith Professor of Economics
University of Glasgow
Alan McNeilage is wrong to say that the SNP has "substantially moved its policies on the monarchy" (Letters, May 18). The SNP has never been a republican party and has always intended to retain the monarchy. Regarding the pound, Australia, New Zealand and just about every other Commonwealth country retained the pound on independence. The Isle of Man, Jersey, Guernsey, Alderney and Sark all use the pound and none of them are in the United Kingdom, so why has Westminster spat the dummy out and thrown a tantrum when it comes to Scotland using it?
C Lamont
Edinburgh
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