"All things are wearisome, more than one can say." - Ecclesiastes 1:8

Wednesday, January 29, 2014

A short (nationalist) economic history of UK currency union

I'll keep this very brief.  I don't understand the fuss about Governor Mark Carney's comments about the prospects of a currency union in the event of a Yes vote in September because what he actually said was uncontroversial but also entirely predictable.  But it seems to be only Jim Sillars reminding people that it was Salmond himself who argued for years that the UK was not an optimal currency area.  The suggestion made during a more buoyant time for the UK economy was that Scotland was locked into a deflationary monetary straight-jacket because of the high interest rates needed to cool an 'overheating' South of England.  The alternative, lest we forget, was membership of the Euro, which Salmond presumably thought was an optimal currency zone.  Therefore by Salmond's own analysis, a currency union with the rest of the UK would be less in Scotland's interests than it was before because one of the key ingredients essential to a properly functioning currency zone is cross-national fiscal transfers.

However, we unionists shouldn't crow too much because there's two good pieces of news for the Nationalists:

1) Carney's comments show a currency union is feasible, if not desirable, and tends to reinforce the impression I already had that talk of 'Scotland won't be allowed to use the pound' was just plain daft.

2) I'm not sure how much attention anyone's paying to any of this outside the Twittersphere.  I keep reading that 'it's the economy, stupid' with regards to the likely outcome of the Referendum but despite this train-wreck of a currency argument, it doesn't seem to have harmed the Yes campaign's poll ratings, despite how much some of us think it should.


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