Scotland, apparently, will not be independent. Ekzitpula data conducted by the agency YouGov, on the basis of the past before the referendum show superiority of supporters of a single state. I must admit that from an economic point of view, Scotland was not ready to secede from the UK.
The survey data show 54% voted against independence and 46%, respectively – for independence from Great Britain. Voter turnout was high: the total number of registered voter turnout was 84%.
If the survey data confirm the results of the vote, then Scotland remains part of the UK. In this case, even when independence was planned to maintaining strong ties, including economic and monetary. And here lies the problem.
If we talk about money or banking, then there is a country with a rich history in these areas than Scotland. Scot David Hume in 1748 first described a direct relationship between money, inflation and economic growth. The first joint-stock commercial bank – as the Scottish idea – was opened in the middle of the XIX century, becoming, in fact, the basis of the global financial system.
Meanwhile, in spite of the rich past, monetary future independent Scotland rather vague. Scottish National Party (SNP) was planning to continue to use the pound in any case, without creating its own currency.
Monetary union with the UK
Monetary Union will be largely similar to the euro area. According to the plan pound continues to circulate in Scotland and the Bank of England proposes to establish a single rate for both countries and support the Scottish creditors during a possible crisis.
Such a union would eliminate the risks of changes in exchange rates, the cost of currency conversion and stimulated trade. Due to the fact that trade in goods and services between Scotland and the UK amounted to 110 billion pounds ($ 178 billion) in 2013 – about two-thirds of Scottish GDP, – SNP sure sterling union would be the best option for both of Edinburgh, as well as for of London. But experts say such an idea just awful, writes The Economist.
Sterling area could face serious problems. Business cycles of its members are close, but not coordinated. This means that one and the same monetary policy may be too stiff for the one hand and too soft for the other. The differences are likely to increase because the budget transfers and general fiscal policy, which helped to synchronize the two economies, will end in the case of “divorce.”
In Scotland, the SNP planned to increase spending by 3% per year, while the ruling Conservative Party in the UK wants to balance the budget by 2019, but today the deficit in Scotland is much more than in Britain, and the economic outlook is much worse due to the rapid an aging population.
Lack of a unified fiscal policy can turn the sterling area in a mini-eurozone, where Scotland will play the role of Greece. That’s why supporters of union with Great Britain strongly oppose this idea.
Independent use of the pound
The use of the pound was assumed even if London rejects the creation of a monetary union.
It is certainly possible: in the world today, 11 States used in its territory the currency of another country (for example, in Montenegro, Kosovo and Andorra, which are not included in the EU, the euro is the main currency).
However, use of the Scots pound without the consent of London poses a number of serious problems. Not responding formally for Scotland, the Bank of England will conduct monetary policy in the interests of the UK and will not respond to possible economic problems in the neighboring country.
The new currency
The new currency and the new central bank – may, at first glance a radical, but the best option in the current situation for Edinburgh. This, incidentally, is a very popular move in the world: 28 new central banks were created in the last quarter of a century, mainly in the former Soviet Union and Yugoslavia. And Scotland would follow their example.
For example, Estonia after independence in August 1991, decided to create its own currency to replace the Soviet ruble. Less than a year later, in June 1992, all deposits in Estonian banks have been translated from RUR to the crown. The new central bank were opened special items for exchange old money for new bank notes. As a demonstration of faith in the authorities crown citizens allowed to exchange rubles even on the German mark, a stronger currency. In 2002, the IMF has recognized Estonian transition model.
Meanwhile, the management of the new currency can be quite a difficult process. Poland and the Czech Republic quickly determined inflation targets and established a floating exchange rate. But in order to reduce problems in the trade of Edinburgh in the early years will have to set a fixed exchange rate, primarily the British pound. In addition, SNP should clearly monitor costs. If you do not, then Scotland will receive a huge deficit and the devaluation of the new currency