THE National has provided strong commentary on what a transition to a new currency would look like.

More recently we have seen Richard Murphy address how a new currency would affect mortgages and pensions, which I would encourage everyone to read. I wish to address the wider arguments proposed by critics of a new Scottish currency, in particular relation to borrowing and Scotland’s exchange rate.

READ MORE: Richard Murphy: How a new Scottish currency could affect mortgages and pensions

Opponents of a new currency argue that businesses and individuals would create a credit line with commercial banks to obtain the new Scottish currency (we will call it the Scottish Krona).

This would be rapidly repaid and because many private businesses are owned outside of Scotland, the Scottish Krona obtained by these businesses would be converted into the currency of the business owner. Therefore, the Scottish Krona’s exchange rate goes down.

This is aided by the fact Scotland imports more than it exports, so Scottish Krona is flowing to the foreign sector. This would exceed demand for the new currency, so the exchange rate would further go down.

First, it is far too simplistic to suggest anyone can borrow from commercial banks. Businesses and individuals wishing to borrow will need to be able to meet the terms of conditions, credit risk assessments, and wider government regulation, especially if markets will be prudent with a new currency.

Secondly, businesses will most likely exchange their Sterling to the Scottish Krona through the government since this has the benefit of receiving a premium, likely between 1-3%. Borrowing from commercial banks is zero-sum since the entire loan will need to be paid back with added interest.

For certain businesses and individuals, there is no guarantee that they will receive enough Scottish Krona fast enough to pay back their bank loans on time. This would only work if the customer were almost solely the Scottish Government who would be making these payments in the Scottish Krona. This does not apply to most businesses.

The National: EDINBURGH, SCOTLAND - MAY 06:  In this photo illustration, A man holds a Saltire flag outside the Scottish Parliament on May 6, 2009 in Edinburgh, Scotland. Today marks the 10th anniversary of the first Holyrood election polling day, before the Scottish

For businesses that opt for private loans but do not receive enough Scottish Krona to meet their obligations, then they will ultimately use their Sterling reserves to exchange for Scottish Krona. They still turn to the Scottish Government to meet their self-inflicted debt obligations. Or they can default on their private debt with the added interest. Anyone with a modicum of business management knowledge will tell you that minimising such a risk is essential. The fact the Scottish Government would be the most creditworthy body in the whole country would mean businesses could avoid a credit line and opt for a government currency exchange.

For the few businesses that do decide to borrow over currency exchanging, they will not simply sit on Scottish Korna and do nothing. They are borrowing to invest. Borrowing to spend is essentially deficit spending and increases aggregate demand. Any suggestion that borrowing will have currency floating around the economy doing nothing should be dismissed.

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A total of 22% of the workers (600,000 people) in Scotland are employed by the public sector. This means there is only a guarantee of one-fifth of Scots to be paid the Scottish Krona on day one of its launch, although this could increase with a Scottish Job Guarantee Programme. Any exchange rate fluctuations will depend on the other four-fifths of Scottish workers and the foreign sector receiving the new currency. Let us explore both groups.

If liabilities are to be paid in the new Scottish Krona, then for the beginning period of independence the foreign sector is less likely to exchange the new currency for their own domestic one. Rather, the launch of new currencies in developed economies has most often been followed with increased foreign direct investment – which would strengthen a new Scottish currency.

Businesses, foreign and domestic, would only convert as much of their Sterling currency that is initially needed. This would first be in the form of taxes, then followed by payments surrounding rent, wages, and various other liabilities. There could be a period where both Sterling and the Krona are both accepted, but this would shift clearly in bias towards a new Scottish currency.

The National:

The general Scottish population will shift to a new currency much faster than wealthy individuals and big businesses. I would echo the estimates of economists Richard Marsh and Warren Mosler, who expect a transition of around 75% of GDP by the end of the first year, which would continue to build up over time.

Scotland’s trade deficit and exchange rate will not harm the domestic economy. Further to this, it is once again too simplistic to judge Scotland’s exchange rate on the trade deficit alone.

Markets will further consider the value of the Scottish Krona when looking at Scotland’s natural resources, moving away from a Conservative Brexit, pursuing a Green New Deal, growth, and developing wider resilient policies. Fluctuations in a currency’s exchange rate are mechanics most countries go through continuously – including the UK pound we use every day. The suggestion that Scotland would be uniquely vulnerable to these fluctuations is not based on serious economic analysis.