IN our recent articles for The National, the Scottish Banking & Finance Group has argued that it is vital Scotland’s financial system is reformed so money is allocated to support the production of goods and services we all need to live well and in harmony with nature.

Within the independence movement, there are common themes in our visions for Scotland’s future – the urgency of the transition to a zero-carbon world, restoring bio-diversity, building a fairer and more equal society, creating well-paid and secure employment, having a first-class health system, a world-class education system and a thriving, innovative economy.

So far, however, few of our political leaders have proposed a viable solution to the questions “how we will pay for it?” and “where will the money come from?”.

Everyone seems to agree avoiding “austerity” is essential and so it is suggested by political leaders that future public spending in an independent Scotland will have to be funded by “government borrowing”. At first glance this seems to be a sensible answer but it begs the question – who will the Scottish Government be borrowing from?

The current policy of the Scottish Government and the Sustainable Growth Commission is to adopt a new currency, but only after several years and after six “economic tests” have been met ... meanwhile Scotland will use the pound sterling as the currency (“sterlingisation”).

If we do this, any government borrowing to finance fiscal deficits will be in a foreign country’s currency – the rUK’s pound sterling. The Scottish Government will have no means to control what rate of interest rate is applied to these loans.

We have seen how the UK Government, with its own central bank and currency, was able to finance the bailout UK banks after the global financial crash of 2008, and find the money to respond to the economic impact of the coronavirus pandemic (even if there are shortcomings in that response). With its own currency, the UK has not had to borrow money on the global money markets to fund the resulting fiscal deficit.

Sterlingisation will expose the Scottish economy to the mercy of the global bond markets and to monetary policy decisions made by the rUK government and Bank of England, which are designed to suit the rUK, not Scotland. If bond markets and/or the Bank of England decide higher interest rates are in order there is nothing Scotland will be able to do to repay the increased debt other than to resort to a new period of austerity and the inevitable spiral of decline which we witnessed in Greece after 2010.

By borrowing in sterling, which will have become a foreign currency after independence, Scotland will face the same risks that afflicted Greece and other countries that do not enjoy monetary sovereignty, such as Argentina and others that use the dollar.

With our own currency established in the shortest timescale possible, the Scottish government will be able to borrow in our own currency. Most of this borrowing will be from the Scottish public with a smaller proportion from overseas governments and investors who wish to hold Scottish currency as part of their foreign currency reserves in order to facilitate trade.

It is essential, therefore, for leaders of the Scottish independence movement to stop advocating government borrowing as the way in which fiscal deficits will be financed in the future, unless it is made clear that such borrowing will only be based on Scotland’s own currency.

To suggest otherwise will leave Scotland vulnerable to the kind of economic and financial crises that have afflicted other countries around the world, who do not have their own currency but use another such as the US dollar, the euro or the CFA Franc (a post-colonial currency used by former French colonies in Africa, which was originally pegged to the Franc and is now pegged to the euro).

The National:

It seems likely that once Scotland has chosen independence we will face a hostile Tory government in Westminster, determined to exact a high price for our exit from the United Kingdom. They are using every trick in the book to thwart Scottish independence and to subvert democracy.

In view of this it is incomprehensible that the current Scottish Government and the SNP leadership continue to insist “sterlingisation” should be Scotland’s currency policy. It is a certain recipe for continued subservience to Westminster and the Tories economic policies, as is any other currency proposal which involves delaying the introduction of a Scottish currency.

Establishing our own currency straight away after independence is THE essential condition which will then allow Scotland to take all the other measures needed to build the kind of country that so many of us in the independence aspire to. The credibility of Scotland’s political leaders depends on it.