The SNP are to publish a new paper on the economics of scexit. If it is to be taken remotely seriously it will need to address key questions on currency, monetary policy, Sterlingisation and pensions
The same tired old answers to the same questions that ultimately sank the SSIndyref in 2014. Why? Because they have no credible economic answers to any of these problems and unless they are honest ( I know!) about the pain that we would all suffer, for probably ten years and beyond, they should get back to the many problems that we face today.
Yes, I agree with almost everything you’ve said there, especially about fixed currencies. I see the only way forward as a free floating Scottish currency. Markets would take a bit of time to approx stabilise their assessment of the new currency so it will be a bit of a lottery whether importers or exporters benefit most, but that’s not crucial. Stabilising the price level will be aided by the buffer stock effect of a job guarantee, as well as normal taxation. There is nothing especially worrying about a country such as Scotland becoming independent as long as it issues it’s own free-floating currency
The only option for an independent Scotland is, of course, its own free-floating currency. This could be a case of policy by opinion poll by the Scottish Government. Public opinion, due to very little education as to the economic reality of the situation, seems to indicate that the Scots are reluctant to give up the £. I believe that is because they think they will need to relinquish, THEIR personal £. This of course is nonsense. There will be no need to exchange any currency if earning a wage, and any benefits or pensions will be paid in Scottish currency, after independence, anyway.
As you pointed out, there is no date for the transition to the Scottish currency from the £ in an independent Scotland. Could it be that within a couple of weeks, when the first intimations of trouble brewing arise, the Scottish Gov could announce the transition straight away to protect the economy?
Far be it from me to suggest that the leadership of the SNP are on this track, but it's not outwith the realms of possibility. I'd suggest they risk teaching the Scottish electorate the reality of the power of a sovereign currency and trusting the people to make the correct choice.
Informal usage of Sterling for any prolonged length of time would be economically unsustainable. But if the policy is a swift transition to a new currency, then this raises a whole host of other questions as yet unanswered by the SNP leadership:
1. Would a new Scottish currency a free floating or fixed rate exchange?
If it's free floating, then businesses would face conversion costs and all the uncertainties that come from the value of goods and services changing as exchange rates fluctuate. These costs are magnified in a floating rate regime, and so represent an additional wedge adding to the costs of trade (as risk is hedged)
If it's fixed exchange rate then this means iScotland needs to build up significant foreign exchange reserves (since a fixed peg definitionally means the exchange rate cannot change to ensure the balance of payments balances, so a deficit on the current account would require an outflow of foreign exchange reserves to ensure that balance is achieved on the balance of payments. This would require the central bank to run down its reserves to maintain the value of the peg; so you will need A LOT of foreign exchange reserves. One paper estimates iScotland would need £40bn in exchange reserves)
My point here is ultimately the SNP really do need to treat this topic with more seriousness. Their informal Sterlingisation with an indeterminate end date policy has huge weaknesses they refuse to acknowledge. And the issue then becomes, how fast do we shift away from Sterlingisation to (presumably) a new currency? (in which case lots of new questions arise, such as is it a fixed or free floating?)
I reckon you're likely right D.C that the SNP leadership are on a track to speedily end Sterlingisation (but they won't admit it since they won't or can't answer the questions that then follow. Plus the faster you end Sterlingisation, the bigger the cuts you need to make to spending to reassure markets youre credible)
The same tired old answers to the same questions that ultimately sank the SSIndyref in 2014. Why? Because they have no credible economic answers to any of these problems and unless they are honest ( I know!) about the pain that we would all suffer, for probably ten years and beyond, they should get back to the many problems that we face today.
Yes, I agree with almost everything you’ve said there, especially about fixed currencies. I see the only way forward as a free floating Scottish currency. Markets would take a bit of time to approx stabilise their assessment of the new currency so it will be a bit of a lottery whether importers or exporters benefit most, but that’s not crucial. Stabilising the price level will be aided by the buffer stock effect of a job guarantee, as well as normal taxation. There is nothing especially worrying about a country such as Scotland becoming independent as long as it issues it’s own free-floating currency
The only option for an independent Scotland is, of course, its own free-floating currency. This could be a case of policy by opinion poll by the Scottish Government. Public opinion, due to very little education as to the economic reality of the situation, seems to indicate that the Scots are reluctant to give up the £. I believe that is because they think they will need to relinquish, THEIR personal £. This of course is nonsense. There will be no need to exchange any currency if earning a wage, and any benefits or pensions will be paid in Scottish currency, after independence, anyway.
As you pointed out, there is no date for the transition to the Scottish currency from the £ in an independent Scotland. Could it be that within a couple of weeks, when the first intimations of trouble brewing arise, the Scottish Gov could announce the transition straight away to protect the economy?
Far be it from me to suggest that the leadership of the SNP are on this track, but it's not outwith the realms of possibility. I'd suggest they risk teaching the Scottish electorate the reality of the power of a sovereign currency and trusting the people to make the correct choice.
Informal usage of Sterling for any prolonged length of time would be economically unsustainable. But if the policy is a swift transition to a new currency, then this raises a whole host of other questions as yet unanswered by the SNP leadership:
1. Would a new Scottish currency a free floating or fixed rate exchange?
If it's free floating, then businesses would face conversion costs and all the uncertainties that come from the value of goods and services changing as exchange rates fluctuate. These costs are magnified in a floating rate regime, and so represent an additional wedge adding to the costs of trade (as risk is hedged)
If it's fixed exchange rate then this means iScotland needs to build up significant foreign exchange reserves (since a fixed peg definitionally means the exchange rate cannot change to ensure the balance of payments balances, so a deficit on the current account would require an outflow of foreign exchange reserves to ensure that balance is achieved on the balance of payments. This would require the central bank to run down its reserves to maintain the value of the peg; so you will need A LOT of foreign exchange reserves. One paper estimates iScotland would need £40bn in exchange reserves)
My point here is ultimately the SNP really do need to treat this topic with more seriousness. Their informal Sterlingisation with an indeterminate end date policy has huge weaknesses they refuse to acknowledge. And the issue then becomes, how fast do we shift away from Sterlingisation to (presumably) a new currency? (in which case lots of new questions arise, such as is it a fixed or free floating?)
I reckon you're likely right D.C that the SNP leadership are on a track to speedily end Sterlingisation (but they won't admit it since they won't or can't answer the questions that then follow. Plus the faster you end Sterlingisation, the bigger the cuts you need to make to spending to reassure markets youre credible)