Salmond decides the referendum is now on currency union, not just independence

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August 26, 2014 by Paul Goldsmith


By far the wierdest portion of the Scottish Independence campaign last night was when Alex Salmond decided to unilaterally remodel the workings of British democracy. Apparently, Salmond thinks that the Scottish population is able to vote in the referendum to tell another country what they have to do. Sorry, but no they can’t.

Despite being strong on some areas during the debate, Salmond once again was constantly prodded by Alistair Darling on the currency that Scotland would have after a “Yes” vote. This is his achilles heel, and he had plainly done some thinking with his team in how to address it. But instead of coming up with an answer that made sense, he managed to dig himself into some more holes. One financial and one procedural.

The financial hole was that Salmond effectively suggested that if Scotland voted yes and then were not offered a currency union by the rest of the UK (rUK), Scotland would have to rethink their obligations regarding the debt that was built up whilst they were part of it. Salmond’s argument seemed sensible to anyone with no knowledge of economics or the international financial system, which was that if Scotland were not going to be allowed to share the rUK’s assets, they shouldn’t have to share their debts. But it is of course not as simple as that.

As Darling pointed out, if Scotland announced early in their independent state that were walking away from their share of the debt that was built up partly when bailing out Scottish banks and keeping up public spending on Scottish health and education, that would send a dangerous signal to the financial markets. Given Salmond has promised a large amount of spending in the future, chances are Scotland would have to borrow. Good luck doing that if you have proven that you will walk away from inconvenient debts.

Secondly, good luck with doing that if you decide to continue with the pound if you are not to part of party currency union. That would involve no central bank and therefore again no guarantor on your debts, which means that Scotland wouldn’t be able to borrow money, and would have to run a surplus, which would involve a lot of spending cuts, which of course Salmond wouldn’t address.

Darling repeated the main point he has about a currency union for Scotland. It would mean that Scotland would have no control over monetary policy, and would need to have their budgets checked, including tax and spending plans, by London. Is that really the way an independent country wants to operate? So, what would be Salmond’s plan B?

Salmond wasn’t prepared to answer that question either. Instead, he came up with a quite ridiculous approach. He said that he was asking in the referendum for a mandate from the Scottish people to go into the negotiations with the rUK after independence asking for a currency union. He then seemed to think that the rUK would have a democratic responsibility to ‘accept the sovereign will of the Scottish people’ and grant them that currency union. Well actually, no the rUK wouldn’t. They would have to accept that Scotland was now an independent country, which is what the referendum is about, but a currency union involves two sides, and you can’t vote in a referendum to make the other side of a negotiation accept what you want in that negotiation.

There are good reasons for a currency union. Scotland is the second biggest export market for the rUK. If we had a different currency there would be about £500m a year transaction costs. Those points can be made in a negotiation. Not simply that it is what the Scottish people want. Salmond ended up using the mendacious tactic of pretending that Darling saying that Scotland could use the pound (in the same way as they could use the dollar or the rouble) was the same as saying they could be in a currency union, which it patently wasn’t.

In the end, on September 18th, if the referendum is on the economy, the NOs will win. But it might not be on the economy. It could be on self-determination (YES win), or on income redistribution (YES win) or on general feelgood words that can’t be measured to check whether they have been achieved (YES win). We will see.

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