Scotland’s currency & the Free Banking option

By Sean Howlett

The Scottish Independence Referendum is drawing to a close. Many questions remain unanswered, but there is one question that sticks out. What currency would an independent Scotland use?

Such uncertainty is causing multi-national companies such as Lloyds Banking Group and Standard Life to warn that they could exit Scotland and move south to England in the event of a Yes vote. Such moves would be devastating for the Scottish economy.

Both sides of the independence argument are showing how economically illiterate they are. Politicians in Westminster are claiming that an independent Scotland would not be able to use Pound Sterling, while politicians in Holyrood contradict this by claiming that an independent Scotland would be in a monetary union with the remainder of the UK, using Sterling.

The reality of the matter is that Scotland can use Sterling if it so wishes, simply by purchasing Sterling on the open money markets, and use it as the currency of Scotland. This is known as “Sterlingisation”.

Many Caribbean and Central American nations have a similar arrangement in place when it comes to the US Dollar. They either officially use the Dollar, peg their currency to it, or use it as their de-facto currency – and they have no agreements with the US Treasury.

The only problem with this idea is that Scotland would have no control over fiscal or monetary policy, with that being entirely in the hands of the Bank of England. Unless of course they entered into a monetary union.

But a monetary union would defeat the entire point of independence, as you can’t really be a truly sovereign nation without control of your own currency. We’ve seen what a catastrophe this can be in the Eurozone. You cannot have monetary union without political union. The Eurozone is suffering because of this and should act as a massive warning to Scotland.

If Scotland was to vote YES to independence tomorrow, they need to utilise the power of the free market and should seriously consider adopting a Free Banking financial model. This would see the use of a diversified basket of currencies in confidence driven economics. This model would create a sounder economy and enhanced competition, leading to a more prosperous Scotland.

However, Scotland will probably not get a chance at prosperity as socialism has prevailed in Scottish politics for far too long. The mentality of socialist centralisation would make it unlikely for such de-centralised, grassroots ideas such as Free Banking to come to fruition.

Free Banking is not an un-tested idea. Scotland itself had a Free Banking system from 1716 to 1845, which proved to be stable and prosperous. This was of course during the time of the Scottish Enlightenment, when Scotland was a great pioneering nation and part of a very successful union with the rest of Britain.

Scotland has the chance to be great again, but it must cast off the shackles of centralised socialist government and embrace the ideas that led Scotland to success in the 18th century. It’s a tragedy that a 300 year old success story is being left in the hands of Alastair Darling and Gordon Brown. These are two people who helped wreck the British economy. Is it any wonder that many Scots do not listen to that pair’s lectures on economics?

It stands to reason that Scotland needs to look to its own past for guidance and not listen to Labour’s economic vandals – nor the likes of Alex Salmond, who if given the chance will wreck what’s left of Scotland.

A previous version of this post was first published by the Huffington Post on 16th September 2014.