Why new Scottish currency should be immediate post independence

The Scottish Currency Group (SCG) have some 3,600 members.

Our advice to the SNP and Scottish Government leadership on policy for a Scottish currency after independence is produced by a working group of pro-independence experts in finance, banking, and public administration under my chairmanship.

We believe there are strong arguments in favour of a post-independence Scottish government having the option to introduce a Scottish Pound immediately after independence. To achieve this, the necessary institutions (such as a Scottish Central Bank) and systems (such as an inter-bank payments system) must be put in place in advance – and preparatory work should start well before the transition period following a vote in favour of independence.

Having our own currency will greatly extend the range and flexibility of economic policy in an independent Scotland, allowing the Government to borrow in its own currency rather than incurring punitive debt and interest payments in GB pounds.

Indeed, we believe it is the key, in conjunction with complementary fiscal policy, to tackle present and future pressing problems (such as the cost of living crisis) and take full advantage of future opportunities (such as energy policy). The failure to demonstrate to the electorate how the full powers of an independent country, including currency, could address such concerns and opportunities was a major reason for the SNP losses in the recent General Election.

While SNP and Scottish Government policy is now to introduce a Scottish Pound as soon as practicable after independence (it was the SCG Convener who proposed the resolution with this form of words which was passed by SNP members against the advice of the leadership at National Conference in 2019), there remains an important disagreement about what is ‘practicable’ and how quickly a Scottish Pound could be introduced.

Read more:

Unspun | Neil Mackay: SNP is reduced to late-night booty-call for promiscuous voters

The Scottish Government’s paper on currency and economic policy published in October 2022 set out criteria which would see the post-independence Government retaining sterling for an indefinite but possibly lengthy period.

We believe the Scottish Government’s caution on this matter reflects fundamental misunderstandings. One is the suggestion that an independent Scotland needs to delay introducing its own currency in order to ‘build up reserves’. On the contrary, foreign currency reserves will automatically be accrued by the Scottish Central Bank (SCB) through the process of Scottish residents exchanging GB Pounds for the new Scottish Pound.

The reality is that foreign reserves can be achieved within months of independence. While no-one will be forced to change their assets from GB Pounds to the Scottish Pound, most people will need to do so because after independence all taxes and all benefits and government contracts will be in Scottish Pounds. People will not be given Scottish Pounds – they will need to exchange their GB Pounds to get them and this will automatically generate substantial foreign reserves for the SCB.

We estimate that the net foreign reserves position, after repayments of GB Pound loans and mortgages, would be some GB£50bn. That sum would be spread by the SCB across a range of currencies – the Euro, US dollar and Sterling. US Dollar reserves would quickly increase with proceeds from oil sales, which are all settled in that currency.

Some observers seem to believe that the change from GB Pounds to the Scottish Pound would simply be a re-denomination of existing balances. That would not be possible. It needs to be understood that when Scotland changes to the Scottish Pound, GB Pounds are not being ‘re-denominated’ or ‘retired’ in their entirety, as happened when the Deutsch Mark and other currencies converted to the Euro. These currencies were ‘de-monetised’ domestically and internationally.

Following Scottish independence, however, GB Pounds will continue as a global reserve currency and as the primary currency in England, Wales and Ulster. Even if Westminster is hostile to our departure, GB Pounds will retain an exchange value internationally and domestically for the rUK. It is this unique aspect following Scottish independence that creates the situation which will lead to the accumulation of Scotland's foreign currency reserves.

SCG have also pointed out that there are other problems with retaining the GB Pound even for a short period after independence. The continued participation of Scotland in the Bank of England’s GB Pound inter-bank payments system is a decision for the BoE and UK Government. We must not risk the threat to cut us off. Having a Scottish Pound inter-bank payments system in place would counteract such blackmail.

Sign up to get Scotland's top politics newsletter straight to your inbox.

Ideally we would wish to engage positively with the Party but, if the SNP leadership persist in their approach on currency, the SCG with our partners in civic Scotland are prepared to undertake the groundwork as part of preparations for independence. We plan to establish a Scottish Monetary Research Institute (SMRI), funded privately, to oversee the work required prior to establishment of a SCB and payments and regulatory systems.

The arguments in favour of Scottish independence have not gone away. Indeed, the continuation of Tory policies by the new UK Labour Government strengthen their relevance. As opinion polls demonstrate, the independence movement is much broader than the SNP alone. While the achievement of independence will ultimately require political and of course democratic support, there is much which civic Scotland can do to convince sceptics and lay the foundations for a better Scotland.

Ian Stewart is the chair of the Scottish Currency Group.