Backing Scotland’s Currency — Foreign exchange reserves for an Independent Scotland

Common Weal has published a new white paper, “Backing Scotland’s Currency — Foreign exchange reserves for an Independent Scotland”, authored by Peter Ryan. From the preface:

The successful management of an independent country’s currency is often tied to its ability to raise and maintain an adequate level of foreign currency reserves. These reserves would be used to stabilise the currency’s exchange rate, protect against speculative attacks on the currency and service debt obligations, amongst other uses. In the case of Scottish independence, it will be important to show that sufficient reserves can be established quickly enough after the launch of a new currency to ensure its stability. It is the purpose of this paper to demonstrate that this proposal is viable.

Ryan reckons that approximately $40 billion (20% of GDP) could be raised to support an independent Scottish currency. Denmark similarly holds in the region of 20% of GDP in foreign exchange reserves1. He estimates that the costs of servicing the debt would be around $70.2 million annually, which is “substantially less than the current annual contribution by Scotland to the UK’s foreign reserves (£500 million per year) which are being built up by the UK government to bail out the City of London in the event of another crash.”

From The National’s reporting of the paper:

Dr Jim Walker, chief economist of Asianomics, said while it was “absolutely correct” that an independent Scotland could raise $40bn in foreign reserves, it was also “absolutely unnecessary”. He described the Common Weal report as a “well-thought-out contribution”, but said many successful independent countries had levels of reserves considerably smaller than 20 per cent of GDP.

“The Czech Republic, until the last two years, had historically a substantial current account deficit making the currency much more vulnerable,” he said. “For Bulgaria that was also historically true but not in the last decade. However, these reserve levels [at 40 per cent GDP] are a result of past deficits. Scotland would run a large surplus.

“Two ‘small’ non-European players with open capital accounts and free-floating currencies, Australia and New Zealand, maintained reserves of 4.5 per cent of GDP and 10 per cent of GDP, respectively, for 2016.

“There is absolutely no need [for an independent Scotland] to be aiming at a 20 per cent of GDP reserve level.”

Peter Ryan’s previous paper, “How to make a Currency — A Practical Guide”, may also be of interest.

Tory campaign strategist Lynton Crosby pushed for Scottish independence vote before Brexit

Politics Home, 26 June:

Conservative election strategist Lynton Crosby urged Theresa May to hold a fresh Scottish independence referendum ahead of Brexit, it has been revealed.

“While it may seem sensible to delay a referendum until after Brexit negotiations are complete this is not necessarily the best strategic position to adopt,” he wrote [in a leaked memo].

“Holding a referendum on independence before Brexit is complete will mean that voters have to grapple with the uncertainty of the outcome of Brexit in addition to the uncertainty of their choice in the referendum.

“Delaying the referendum until after Brexit is complete removes one of these unknowns.”

He said a Brexit outcome that dissatisfied Scots could “easily result in Scotland voting for independence”.

SNP took right-wing constituencies for granted and paid the highest price

Thought-provoking commentary by Michael Fry in The National today:

One thing that has struck me in all the commentary and analysis since the General Election is the refusal to accept that there might be a kind of right-of-centre Scottish nationalism, and that its alienation from the present leadership of the SNP could be a reason for the setbacks last Thursday.

… While Salmond was personally a lefty he could, as a former bank executive, walk the capitalist walk and talk the capitalist talk. That was what he and his colleague John Swinney did at a crucial stage more than a decade ago as they made the rounds of Scottish finance and industry persuading moneyed men that the independence of the country might be good for them too—and that, at any rate, things could hardly get worse than they eventually got under New Labour. All the while Salmond remained First Minister, he continued to cultivate these connections, and with a good deal of success. George Mathewson, Jim McColl, Brian Souter, Tom Farmer, Bill Samuel, Peter de Vink and many others have all endorsed or donated to his SNP. But since 2014 the ample flow of business funding has dried up.

The reasons are not far to seek, and can be found conveniently summarised in the election manifesto the SNP published a couple of weeks ago. Looking inside we find, against dozens of spending commitments and calls for higher taxation, only a couple of lines on how the private sector of the economy (from which all other blessings flow) is to be encouraged and expanded.

Former ECJ Advocate General: Post-Brexit, Scotland could be in both the UK and EU

Miguel Maduro
Miguel Maduro at The State of the Union 2013, European University Institute. License: CC BY-SA 2.0.

Professor Miguel Poiares Maduro, former Advocate General at the European Court of Justice, giving evidence today to the Committee on Constitutional Affairs (AFCO) in the European Parliament:

“There is one other possibility, that is to have that some UK citizens may maintain citizenship of the European Union and others won’t. And this is a bit of a provocation… It is… Nothing prevents a part of the United Kingdom to stay and another part of the United Kingdom to leave. We have a precedent with that; it’s called Greenland. We have the case of one member state where part of its territory left the European Union and another part stayed. So, in principle, nothing will prevent for the territories, for example, of Northern Ireland and Scotland to stay in the European Union, and for the rest of the territory of the United Kingdom no longer to be part of the European Union.

“Of course, this will be complex to organise in practice, it will require a border inside a member state, because it will basically mean that Scotland and [Northern] Ireland will remain part of the European Union and part of the United Kingdom. But it will not be impossible.

“Still, it will be again very problematic in political terms, and the consequences of it will make it difficult. If we think about it… I think, on the one hand one risk will be economic—for the UK—because naturally you will have… I will say for Scotland and Northern Ireland, it would be extremely positive. They will attract lots of investment and companies that will locate in those territories because they could benefit from both those markets. But of course for the rest of the United Kingdom it will be even more dramatic because there will be economic mobility to that part of its territory.

“For the European Union, the difficultly will be that if this will take place without the UK formally leaving as a state—because part of its territory will stay, in the same way that happened with Denmark and Greenland—it will mean that the representation of that part of the territory would be made by the UK government; not by the Scottish and the Northern Ireland governments. For this to be done, without leaving and then coming in as Scotland and Northern Ireland to be then in terms of state secession, the representation of this part of the territory will have to continue to be done by the United Kingdom central government.

“Of course, there will be the possibility to leave as [the] UK and come in as part of the UK. That will be another alternative.”

The Scottish Government made proposals along these lines in the paper Scotland’s Place in Europe, published late last year. David Davis, the UK Government’s Brexit secretary, rejected the proposals.


James Kelly, writing at Scot Goes Pop, 18 Apr:

It’s probable that the SNP will shed at least a few seats [in the upcoming UK general election]. They hit a ‘sweet spot’ in 2015 when the unionist vote was split in a particularly favourable way, but that’s no longer the case. Limited losses to the Tories (and perhaps to the Lib Dems) are to be expected, so it’s important that we don’t allow the narrative of what the SNP “need to do” to run away with itself. Even 38 seats out of 59 would be an emphatic victory… but it’ll hopefully be a lot better than that.

Scotland’s Brexit Choices

Dr Kirsty Hughes, Director of the Scottish Centre on European Relations, 17 April:

The Article 50 clock is ticking, but talks are not likely to start until the end of May or early June. The two year deadline to conclude exit talks means, barring a change of heart, the UK will be out of the EU by March 2019 but with most of its future EU-UK trade deal still to negotiate.

First Minister Nicola Sturgeon has asked for a second independence referendum, and a Section 30 order, so that Scottish voters can have a choice on independence or not before the UK finally leaves the EU. Theresa May has said, for now, she won’t go along with that. However this political stand-off develops or is resolved, Scotland will have to make its Brexit choices amidst considerable uncertainty – unless it gets no choice, with May turning ‘no, not now’ into ‘no, never’.

If Sturgeon and May resolved their disagreement so that a second independence referendum could be held by March 2019, what might Scottish voters know by then, and what will still be uncertain?

In-depth, must-read analysis from the recently launched SCER think tank.

Sources of data and statistics

We’ve added a page linking to various sources of data and statistics relating to Scotland and the wider world, including GDP of Scotland and its regions, trade, population, politics, energy, health, and the environment. Check it out here and let us know if we’ve missed anything.

Right to choose our own fate is being denied

Kenny Farquarson, The Times, 12 April (paywall):

Who wrote these words? “As a nation, [Scots] have an undoubted right to national self-determination.” Was it Nicola Sturgeon? Alex Salmond? Elaine C Smith? No, this declaration of Scotland’s inalienable right to decide its own future comes from Margaret Thatcher, in The Downing Street Years, her memoirs.

The Scots are “a historic nation with a proud past”, she wrote. “Should they determine on independence no English party or politician would stand in their way, however much we might regret their departure.”

Times change, and many unionists would now regard Maggie as a bit of a wuss. These days, trenchant unionism thinks of itself as having more steel than the Iron Lady managed to muster on this issue. Not only must Scotland stay in the UK, say unionist ultras, Scots must be denied the choice to leave.

2015 GDP per capita for EU27 and Scotland, Wales, Northern Ireland, and regions of England

A couple of weeks ago, Eurostat—the European Union’s statistics office—released 2015 GDP data for the EU’s nations and regions. We’ve created a couple of charts based on it.

The first shows that, measured by GDP per capita (adjusted for relative purchasing power in the EU context), Scotland is fourth out of the UK’s 12 ‘NUTS 1’ regions (onshore economy only).

Source: 2015 GDP per capita in 276 EU regions, published by Eurostat on 30 March 2017

The Scottish Government estimates that the country’s actual GDP per capita in 2015 was £26,500 for the onshore economy, £26,700 with a population share of extra-regio1 activity, and £28,400 with a geographical extra-regio share2. The most recent GDP estimates have onshore GDP per capita for the 12-month period from October 2015 to September 2016 at £27,750; £29,300 including a geographical share of extra-regio economic activity3.

The second chart compares the onshore GDP of the UK countries and regions against the 27 other countries of the EU. The UK data is for the onshore economy only.

Source: 2015 GDP per capita in 276 EU regions

Scotland’s onshore GDP per capita is ranked 12th alongside the EU28. When you include a geographical share of oil and gas from the continental shelf, we calculate that Scotland ranks ninth (see table below).

Country 2015 GDP per capita (€PPP) Rank
Luxembourg 76,200 1
Ireland 51,100 2
Netherlands 37,000 3
Austria 36,900 4
Denmark 36,600 5
Germany 35,800 6
Sweden 35,700 7
Belgium 34,200 8
Scotland (with geographical share of North Sea oil and gas) 31,643
Finland 31,600 9
United Kingdom 31,200 10
France 30,600 11

We’ve based our calculations on figures in last month’s Fraser of Allander Institute publication Economic Commentary, Vol 41 No 1, in which the FAI compares Scottish GDP per capita (including oil) with that of the top OECD countries.

Below are our back-of-an-envelope sums. The multipliers between given countries in the OECD and Eurostat data are almost identical so we’ve gone with this simple approach. If any readers have a more sophisticated way of doing it, please let us know.

// OECD vs Eurostat multiplier
// All € (Eurostat) or $ (OECD), PPP, for 2015

// Random check: Finland / France
OECD: $42,268 (Finland) / $41,005 (France) = 1.0308011218
Eurostat: €31,600 (Finland) / €30,600 (France) = 1.0326797386

// Random check: France / UK
OECD: $41,005 (France) / $41,779 (UK) = 0.9814739462
Eurostat: €30,600 (France) / €31,200 (UK) = 0.9807692308

// Random check: Austria / UK
OECD: $49,440 (Austria) / $41,779 (UK) = 1.1833696355
Eurostat: €36,900 (Austria) / €31,200 (UK) = 1.1826923077

// Eurostat, Scotland with geographical share of NSOG
OECD/FAI multiplier: $42,372 (Scotland with geo. share of NSOG) / $41,779 (UK) = 1.0141937337
Scotland (for Eurostat comparison): €31,200 (UK) × 1.0141937337 = €31,642.84

// Post-calculation check: Austria / Scotland (geo. share of NSOG)
OECD/FAI: $49,440 (Austria) / $42,372 (Scotland with geo. share of NSOG) = 1.1668082696
Our calculation (Eurostat): €36,900 (Austria) / €31,642.84 (Scotland with geo. share of NSOG) = 1.1661404211

// OECD($)/Eurostat(€) divisor check (rounded to two decimal places)
Luxembourg: 102131/76200 = 1.34
Ireland: 68481/51100 = 1.34
Netherlands: 49570/37000 = 1.34
Austria: 49440/36900 = 1.34
Denmark: 48994/36600 = 1.34
Germany: 47999/35800 = 1.34
Sweden: 47823/35700 = 1.34
Belgium: 45873/34200 = 1.34
Scotland: 42372/31643 = 1.34
Finland: 42268/31600 = 1.34
United Kingdom: 41779/31200 = 1.34
France: 41005/30600 = 1.34

Roundup, Sunday 9 April 2017

Noteworthy news, analysis, and commentary from the past week or so…