Independent Scotland or a Formal Monetary Union-The Debate is On…
While George Soros, the billionaire financier is of the opinion that an independent Scotland may not be such a good idea as it could be potentially dangerous, the Adam Smith professor of political economy at the Glasgow University, Ronald MacDonald feels otherwise. He feels that a new currency seems to be the only feasible economic alternative for an independent Scotland.
However, not many agree as Soros had pointed out. He has said that Scotland leaving and becoming independent yet being a part of the Bank of England and the Sterling may not be practical as it seems to be. He said that it would be extremely inefficient. He gave a suggestion that instead of becoming independent, it could possibly become the euro zone member. Many business leaders have also expressed their concerns about voting for independence.
Opinions by the UK and Scotland’s Top Economists
Many of the top economists of the UK and Scotland have expressed their opinions over this issue. The have expressed their views and concerns over the currency arrangements that would be best suited for independent Scotland.
While the Government of Scotland is in favour of a formal monetary union where an independent Scotland would not stop sharing the pound, this arrangement has not been favoured by the main parties of Westminster as well George Osborne, the Chancellor. In fact, it has been entirely ruled out.
On the other hand, Alex Salmond, the First Minister has received increasing calls to take action on his plan B for currency since Mr. Osborne’s statement.
Backing of Separate Currency
By Professor Ronald MacDonald
By backing an entirely separate currency as the ideal option, MacDonald informed the committee if the currency is part of a monetary unit that is formal, an independent Scotland will not be in a position to understand and deal with oil shocks that come as a package from being a net exporter of hydrocarbons and a producer of commodity. This may have notable knock-on effects for the competition of non-oil sector.
Professor MacDonald is of the opinion that after the independence, the only option that will make sense is to see Scotland as an entirely separate currency. He feels that nothing else may work, and nothing else will be credible enough to these markets.
He further commented that the separate currency will also prove to be an ideal scenario for the remaining part of the UK as well. He also added that the transaction costs that will be incurred due to that will actually be small compared to the possible costs when the monetary union breaks up.
By Dr. Monique Ebell
Agreeing with Professor MacDonald’s statements, Dr. Monique Ebell who is a research fellow at the National Institute of Economic and Social Research said that Scotland’s own currency will give it the biggest ability to react to its shocks. Hence, she also felt that Scotland would benefit if it has its very own currency.
She also claimed that it is vital considering the fact that the debt level of an independent Scotland will possibly start its life like an independent country. She was of the opinion that it would be very hard to see how monetary union can be in the interests of the other parts of the UK.
By Sir John Gieve
A visiting faculty at the University College, London, Sir John Gieve also agreed with MacDonald and Ebell. He couldn’t quite comprehend the real reason behind the remaining parts of the UK’s intrigue to accept the formal currency union in anything else other than for exceptionally controlling the terms. Agreeing that the preference for a monetary union by the Scottish Government was understandable, it would definitely by the ideal situation to start off with as the economies happen to be extremely integrated. However, as time passes, it’ll soon get less ideal. Also, the different weights of gas and oil especially may make it very uncomfortable to have a currency union that will be altered greatly so as to suit the remaining parts of the UK.
Backing of Monetary Union
Directors at the David Hume Institute, Professors Jeremy Peat and Anton Muscatelli have opted for a monetary union as being the ideal choice, and a separate currency would only be their second option.
By Professor Anton Muscatelli
In fact, Professor Muscatelli informed the MSPs that he was a strong supporter of a monetary union for both, other parts of the UK as well as an independent Scotland. He pointed this out because he feels that transaction costs could be substantial and there may be other costs to it that can not be estimated easily at this juncture.
He also pointed out that the oil fund could be utilised to help smoothing out the public revenues and expenditure over time. This will also help in solving the hydrocarbon issue that has been highlighted by Professor MacDonald. In the event of a non-resolution of the monetary union, the second best options seems to be of an independent Scottish currency-this is what Professor Muscatelli said.
By Professor Jeremy Peat
If the currency union can be achieved in an ideal scenario where adequate independence of the policy action allows Scotland to take care of its own interests in the emerging markets, then without a doubt the currency union is the best option feels Professor Peat. He also emphasised on the fact that the only other alternative would be an independent currency but it would definitely not be a soft and easy option.
The Banking Risks
The economists also stated that there would definitely be consequences of the independence. It was possible that the banking sector in Scotland, large corporations and other banks would need to move South.