An independent Scotland could set up a Central Bank that would pay for itself

That is the main recommendation of the latest policy document in the White Paper series produced by think tank Common Weal, a series which deals with the policies and infrastructure that an independent Scotland will require.

READ MORE: Craig Dalzell: Indy Scotland wouldn't have to copy the Bank of England — there are lots of successful models to follow

The paper ‘Scotland’s National Bank — Central Banking in an Independent Scotland’ has been prepared by Dr Craig Dalzell, the Head of Research for Common Weal who holds an MSci and PhD in Laser Physics and Photonics and runs a politics and economics blog at thecommongreen.scot.

Common Weal has already proposed that an independent Scotland will require its own currency and a central bank would be needed to provide that currency.

The report points out that the Scottish Government proposed a ‘Scottish Monetary Institute’ (SMI) prior to the 2014 referendum.

The report states: “This programme was fundamentally premised on the then favoured proposal of Scotland entering a formal currency union with the rest of the UK which would have resulted in most macroeconomic governance over Scotland remaining within the Bank of England.”

That SMI would have been more limited than a central bank and would have been expected to cost around £77.6 million to initially set up followed by annual running costs of a little under £50m per year, with between 105 and 445 full time equivalent jobs created.

Common Weal says an estimate of the costs of running a fully fledged central bank may be calculated.

It states: “As of 2016 Scotland’s GDP is approximately £157 billion. Based on the experience of countries of similar size to Scotland it could be estimated that a Scottish central bank would incur operating costs of approximately 0.09 per cent of GDP or £140m per year, although a budget of anywhere within a factor of two to three of this figure would be reasonable depending on the level of responsibility granted to it.

“As Common Weal expects and advocates for a more interventionist and data driven economic policy to be employed by Scotland compared to present circumstances, an illustrative budget of £200m per year could be reasonably defended.

“Scotland’s central bank would therefore be similar in size to that of the banks of Finland, Sweden, Poland or Portugal in absolute terms and similar to Belgium, the Czech Republic or Latvia in terms of percentage of GDP.”

The report points out that central banks are expected to be profit-making and, thus, self-sustaining, as well as often providing net income to the national Treasury. Between 350 and 1000 jobs could be created and the bank would be profitable soon after its creation.

A very important point for an independent Scotland wanting to be a member of the European Union is that the EU insists on central banks being independent.

The report states: “Within the European Union it has been a legal requirement since 1992 that both the European Central Bank and the Central Banks of the EU member nations should all be independent of both the EU and of the governments of the member states and this remains true, at least on paper, to this day.

“The UK’s Bank of England was only made formally independent of government as recently as 1998 in a move initially designed to pave the way towards the UK’s entry into the Eurozone. However what precisely is meant by Central Bank Independence is itself subject to some debate.”

The White Paper concludes: “The benefits which come from a properly regulated and managed economy up to and including active investment in under-appreciated areas will also be important. An independent Scotland which chooses to adopt its own monetary policy will be required to set itself to the task of creating its own national central bank but it is clear that this task is both eminently possible, economically practical and will pay its own dividends within a very short space of time.”