Twenty-First Century Central Banking and An Independent Scotland’s Currency Choice report
Media
Image
Content
The University of Edinburgh’s School of Social and Political Science has published a report on developments in central banking and their implications on what the currency choice might be if Scotland were to become independent.
The report is led by Dr Iain Hardie, Senior Lecturer in International Relations at the University of Edinburgh, and published by the University's Centre on Constitutional Change.
Please see below a summary of the report findings.
The full report is here.
Dr Hardie said: “Changes in central banking since the global financial crisis, and especially during the pandemic and in the aftermath of the recent ‘mini-budget’, have materially changed the nature of the currency choice for an independent Scotland. A new currency is now a far better alternative to an informal currency union with the remaining UK.”
For further information contact press.office@ed.ac.uk or the author of the report can be contacted directly at: iain.hardie@ed.ac.uk
Summary of report: Twenty-First Century Central Banking and An Independent Scotland’s Currency Choice
- Changes in central banking since the global financial crisis, and especially during the pandemic and in the aftermath of the recent ‘mini-budget’, have materially changed the nature of the currency choice for an independent Scotland.
- A new currency is now a far better alternative to an informal currency union with the remaining UK (rUK).
- The debate on currency options has focused thus far largely on a central bank’s role as ‘lender of last resort’ to commercial banks. But the role of central banks as ‘buyer of last resort’ for government bonds is arguably more important. By acting as the buyer of last resort, central banks, including the Bank of England, have become integral to government borrowing capacity and therefore fiscal policy. The Bank of England has been the key actor in enabling the UK government to finance coronavirus-related expenditure and preventing the breakdown of government bond markets in March 2020 and September to October 2022. Such challenges could occur as the result of global events or events closer to home.
- A new currency in an independent Scotland would allow money creation to ensure the full range of monetary policy. This includes the Scottish central bank acting as ‘buyer of last resort’ to maintain the government bond market and Scotland’s ability to borrow. This is not possible in an informal currency union.
- Despite this support, an independent Scotland would still need to maintain responsible economic policies. A new currency is not a fiscal free lunch, any more than Sterling has allowed the Truss government to follow its economic agenda.
- A new currency would allow the maximum insulation from economic and political events in rUK. In an informal currency union, the impact of events similar to the recent ‘mini-budget’ would still be felt on Scottish mortgages, pensions, and currency. However, Scottish government bonds would be unlikely to benefit directly from Bank of England buying.
- Additional developments in central banking indicate that a Scottish central bank could also be involved in some of the most important political issues an independent Scotland will face, including with regards to inequality, housing and climate change. This further supports the case for a new currency, giving a central bank the full range of powers. In an informal union, decisions on these matters would be taken in London.