These are the ‘Seven Sensible Tests’ for Scotland’s new currency

Independence Day will be St Andrew’s Day 2022 and two years of preparation and separate negotiation with rUK is about to get under way. One priority issue is the creation of a currency for Scotland.

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The Spring 2019 SNP Spring Conference had approved the policy that an Independent Scotland would adopt its own currency as soon as practicable after Independence Day and that preparations for that currency should start immediately after a vote in indyref2. That is perfectly normal and sensible as almost without exception countries that have become independent have adopted their own currency within a short time period.

The SNP’s Growth Commission proposed that the new currency should only be introduced if and when six tests were met.

These tests are now a part of the official SNP currency policy as “guidance”. Unfortunately, these tests are rather nebulous, being either irrelevant, unachievable, already achieved or simply incoherent.

What is really needed is a set of tests that address the real issues around introducing a new currency and which deal with the genuine concerns of the people. Let’s consider the Seven Sensible Tests that we should adopt instead:

Test 1: Is the Bill to establish the Scottish Reserve Bank (the central bank) drafted and ready?

Drafting the Bill and getting it approved in Parliament could easily take a year, so we should really have the Bill drafted and ready so the parliamentary procedure can start within a week or two of indyref2.

Test 2: Will new notes and coins be ready in time?

The most time-consuming task is getting the notes and coins designed and manufactured. This can easily take a year, so careful planning and management are needed.

Test 3: Have we designed, implemented and tested a new Scottish Bank payment system?

Payments can’t go through the existing Sterling UK payments clearing system as it is in the wrong currency, so we need to set up the infrastructure for a new Scottish inter-bank system. Fortunately there is a ready-made template in the form of that used by the Single European Payment Area (SEPA). All the Scottish banks already support that within their existing systems.

Test 4: Have we designed / executed a Public Information Campaign?

The public need to know what the plan is and why, when and how things are happening. They need to understand that the exchange is entirely voluntary, so the do-nothing default position for them is that their money stays sterling. If they want the new currency, new bank accounts, etc then they will need to ask for them.

Test 5: Are the premises, staff, infrastructure, etc for the Scottish Reserve Bank in place?

The bank has to have at least the basics in place before it can start on organising and implementing the currency. An ideal premise could be the very “bank style” Royal High School building in Edinburgh.

Test 6: Have we identified and developed a plan for the financial regulation that will be needed for our financial institutions, etc?

Most commentators agree that the existing London controlled financial regulation is extremely poor, so we need to decide what controls we want. Cutting and pasting the existing system would be a bad idea that would just perpetuate the power and abuses of the finance sector.

Test 7: Has a (Sterling) Pensioner Guarantee been set up?

Pensioners generally have fixed incomes so are very vulnerable to unpredicted changes. The Guarantee should be that they receive the HIGHER of either the Sterling amount of their pension or the one-to-one amount in the new currency. That makes it a one-way bet for Sterling pensioners as if the new currency falls they gain as the Sterling is worth more. It is more likely the new currency will rise against Sterling in which case the Guarantee will top them up.

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Time passes and as midnight strikes on November 30, 2022 the Union flag is lowered at Edinburgh Castle for the last time. To the sounds of the massed pipes and drums Edinburgh welcomes Independence with the largest firework display ever seen, outdoing anything at the Festival. Meanwhile the banks have millions of new debit and credit cards, cheque books etc nearly ready to send out during December with details of people’s new currency bank account numbers.

It will be in just seven week’s time in mid-January 2023 that starter packs of the new currency will go on sale. That will be followed over the weekend of January 28 2023 with the sale of Sterling to the Reserve Bank for those who have asked their bank to arrange this and on Monday morning January 30 the Reserve Bank will send back to the new currency accounts the equivalent amount in Scottish pounds.

All the new cards, etc will go live, ATMs will now issue only Scottish pounds and vending machines will no longer accept Sterling notes and coins. In a month or two the temporary peg against Sterling will end and the Scottish pound will be launched into the market as a free-floating currency. There will be very few sellers as the only people with the currency will be those that specifically requested it.