Dr. Craig Dalzell recently authored a discussion paper titled ‘Scottish currency options post Brexit’. This paper was written for a Scottish Think Tank called Common Weal.
In the paper Dr. Dalzell discusses the ramifications of a possible Scottish currency after Brexit. There have been calls for another Scottish referendum seeking independence from the United Kingdom, after the UK in its own referendum voted to leave the European Union.
Just after the results of the Brexit referendum were made known, Scotland’s First Minister Nicola Sturgeon announced her intention of holding a second referendum. Previously on June 24, 2016 she had said that a second referendum was a ‘statement of the obvious’ according to the BBC.
Currency is a major issue in any bid for independence
In the previous Scottish referendum the question of a future currency weighed heavily on the votes of the ‘No’ voters. The paper cites a poll conducted by Lord Ashcroft which found that more than half of ‘No’ voters cited currency as one of the top three reasons which influenced their decision.
Dr. Dalzell hopes to examine various scenarios which can arise out of a Scottish independence vote in the future.
He says:
“It is the purpose of this paper to discuss the comparative advantages and disadvantages of the reasonable options which an independent Scotland may take so that a full and objective understanding of issues can be reached.”
The options before Scotland
In the first referendum, the pro-independence campaigners pushed for and promoted the idea that Scotland would retain the British Pound. According to Dr. Dalzell, the idea being that the country would form an official currency union with what remained of the UK. This would also get Scotland on the Bank of England Monetary Policy Committee. However, now in the event of another referendum taking place, broadly, Scotland has two options:
- Paper Fiat: This option includes either staying in a currency union with the UK and continue to use the British Pound. Create a Scottish Pound either as an independent currency or pegged to the Pound or the Euro, or the frightening prospect of adopting the Euro, which is likely to put off many people who would otherwise vote ‘Yes.’
- Cryptocurrency: Scotland could also launch a cryptocurrency, which would be an interesting idea considering the newness of this type of money. Russia has been toying with this idea as recently as May 2016. Brave New Coin cited Deputy Director Pavel Livadny of Rosfinmonitoring as saying that the new currency would be more convenient for Russians. Another interesting case is Ecuador which abandoned its own currency more than 15 years ago to use the US Dollar. Ecuador’s Sistema de Dinero Electrónico (electronic money system) started in December according to CNBC, making Ecuador the first country to use an all-electronic currency.
Can Cryptocurrency be a success in Scotland
Whether or not a cryptocurrency can succeed as the national currency of Scotland is questionable. Concern is voiced in the paper about an ‘unknown verification system’ in the case of cryptocurrencies instead of a bank with a commercial reputation.
On the subject of cryptocurrencies the paper concludes:
“While cryptocurrencies should be considered seriously as a potential transaction medium they should not be over-idolised as a total solution which is infinitely superior to existing forms of money. Even if and when all of the technical challenges identified are solved, many of the economic challenges involved with interactions between currencies, like exchange and interest rates, would still remain.”
However one model which may and can certainly work is to slowly introduce a cryptocurrency alongside a fiat currency to see how it all goes, after all if Russia and Ecuador are trying and if many central banks are now actively researching Blockchain, the idea is not that harebrained.