IN our first article, which was published in The National on March 26, the Scottish Banking & Finance Group (SBFG) proposed that Scotland will need to reform our financial system if we are to make a success out of our independence and that we will need to redesign both the banking system and reform the way our pension funds function.

The whole of our financial system must be designed to serve the people and be accountable to the people through a democratic constitution and elected Parliament.

In short, our money must be designed and used for the benefit of the people, and to support the creation of real wealth by producing the goods and services we all need individually and collectively to live well and in harmony with nature.

If we fail to reform our financial system our new currency will, by default, be a “bankers” currency – by the term “bankers” we mean the financial oligarchy and its agents.

Scotland will certainly need banks, bankers and other financial institutions but not of the kind we have been used to because those institutions have engendered a system which has failed, and will continue to fail, to allocate enough capital for useful purposes.

The SBFG fully supports the proposal that Scotland must establish our own currency immediately after Independence Day. However, our position is that Scotland must go beyond establishing our own currency to ensure that it is a people’s currency and not a bankers’ currency.

The starting point is a Scottish central bank which is fully accountable to Parliament for the execution of a democratically defined remit with regard to both monetary and fiscal policy tools of economic management, and is not permitted to act “independently”.

The central bank should stand at the centre of a banking system which includes a National Investment Bank (NIB, perhaps complemented by subsidiary specialised banks – such as an Energy Bank, a Housing Bank, an Agriculture Bank and a Community Bank.

The development of the wider banking system needs to facilitate the recreation of local and mutual banking institutions, including credit unions and savings banks, alongside a greater diversity of commercial retail banks. A NIB would be capitalised initially by the central bank and then be authorised to issue its own bonds, as should any complementary specialised subsidiaries be able to issue “hypothecated bonds” (such as energy bonds, housing bonds etc).

Our existing pension funds manage a vast volume of public savings to help fund retirement income for those who are fortunate enough to be members of pension schemes – but pension fund coverage is still a long way from being universal.

The current design of our pension funds and the regulatory and accounting regime within which they reside fails to allocate the capital available from public savings to useful, wealth-creating activity. Like most of the credit created by the current banking system, most of the “investment” made by pension funds is in the form of purchasing and trading of financial assets, which has little if any direct relationship to real wealth creation.

Reform of our pension funds can start by directing the capital managed by funded public sector schemes towards supporting the productive business activity that our post-independence economy will demand. The Scottish Local Government Pension Schemes (LGPS) currently manage capital totalling in the region of £45 billion – of this Strathclyde Pension Fund manages nearly half at £21bn. The funds which are held in the LGPS are all derived from the public purse, either from central government direct grant to local authorities or from local taxes levied by local authorities. What is done with this money is a matter of public interest but the law of “fiduciary duty” which sets the terms for pension fund governance makes no provision whatsoever for the public interest.

A new Scottish regulator equivalent to the UK Financial Conduct Authority (FCA) will need to have a wider remit to ensure that the allocation of finance is done in the public interest in addition to the supervision of governance and operational systems.

There is now abundant evidence that “financialisation” of the economy and of the financial system itself has undermined, and continues to undermine, the real purpose of our economy, which is to produce the goods and services we all need individually and collectively in order to live well and in harmony with nature.

To enable us to recover from the Covid-19 pandemic, “build back better”, tackle social inequality and to undertake the vital transition to a “green economy”, it is essential that we focus all our efforts not only on establishing our own currency immediately after independence but also to reform our banking and financial system.

The primary purpose of the Scottish Banking & Finance Group is to ensure that Scotland has this conversation.