IN this series of articles members of the Scottish Currency Group outline the case for a separate Scottish currency – the Scottish Pound – to be established as soon as possible after independence; highlight the transformational opportunities this will enable to address present economic and social challenges facing Scotland; and answer questions about how the change is likely to affect households and businesses in practice.

IF Scotland is to achieve more than nominal independence then it will be essential to have our own currency. There are also compelling reasons why the introduction of that currency must take place within a very short period after the newly restored independent Scottish state has been established.

All countries, regardless of their geographical or population size, face limits on the resources available to them – resources which include their working population and its level of education and skills, technology, land and other natural resources.

Making the best use of these resources in order to deliver the priorities of the people, and to meet their essential human needs, requires control of the nation’s currency so that government debt is not owed in foreign currency to foreign governments, banks and other investors. Debt owed to others is a recipe for debt bondage and results in the assets of the nation being used to pay off debts owed to others and loss of control over the management of our own resources.

Debt and to who it is owed is the key determinant of whether national independence is real. Where a country has its own currency and its own central bank, all government spending can be financed through the central bank.

A central bank is the government’s bank and when it spends it creates a debit in the account it holds at the central bank. This debit/debt is matched by the credits held by the private sector – individuals, households and businesses.

We call these credits “money”.

The money spent into the economy by the government then circulates as people and businesses buy and sell among themselves. Government spending creates a “multiplier” effect. Some of the money in circulation following from government spending is later recovered via taxation, which removes some of the money in circulation in the economy. The difference between government spending and the amount recovered in tax is known as the “deficit”.

These deficits are often thought to be a problem and that they increase a long-term debt “burden” for future generations. However, this is not the case provided the deficit spending has been used to create high value assets which maintain and increase the productive capacity of the economy.

Maintaining and increasing the capacity of the economy to provide what people need both now and in the future means that future generations will not bear any burden whatsoever but will be able to enjoy the fruits of a productive economy throughout their lives, including after retirement.

While we remain part of the UK. Scotland is a currency user, using the UK currency which is issued by the UK government and Bank of England.

The National: The logo of Bank of England during a press conference for the release of the Monetary Policy Report, at the Bank of EnglandThe logo of Bank of England during a press conference for the release of the Monetary Policy Report, at the Bank of England (Image: PA)

Scotland is unable to spend what we would like to in order to provide for the Scottish people and deliver on their priorities; we are unable to employ all the resources we have to produce the goods and services we want as our priorities.

Not having control over our own currency increases our dependence on spending decisions made in Westminster and by private sector and overseas investors.

The constraints that current Scottish Government faces have been very obvious during the ongoing strikes in the Scottish NHS and other parts of the public sector. Settling fully justifiable pay claims by public-sector workers is much more difficult when the government is not in control of the currency.

The Scottish Government is constrained by limited budgets set at Westminster from where it is the UK Government which controls the currency and the availability of money for public spending.

Banks issue credit (in the form of bank loans) but it is banks who decide what purposes they will lend for.

READ MORE: When will the SNP start causing a rumpus over the referendum block?

Private sector and overseas investors and banks are not democratically elected or accountable to the people – it is elected government that is accountable, and this means that it is the post-independence, elected, Scottish government that must play a leading role in directing the allocation of money in the economy through public spending and investment by the banks and other financial institutions.

Since Scotland does not currently have its own currency, how will we go about establishing one? The first requirement is to have established a Scottish Central Bank prior to the date of independence.

We will be looking at the institutions and other arrangements required and how the Scottish currency will be introduced in further articles in this series, along with information on what a Scottish currency will mean for the ordinary citizen and business in Scotland in terms of bank accounts, transactions, pensions, mortgages etc.