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”.

Theresa May ditches manifesto pledges to clear decks for Brexit: Legislative battle ahead to clear hung Commons and Scottish Parliament

FT.com, today, in an article on the UK government’s legislative agenda announced in the Queen’s Speech:

There were growing fears in Whitehall that the Scottish nationalists could hold London to ransom by voting down the Great Repeal Bill—which puts EU law into British law.

Britain’s devolution settlement was developed under the auspices of the EU single market.

The government now believes that the relevant framework should be reset at a UK level, in particular for devolved policy areas such as agriculture, fisheries and environmental protection.

But that requires the authorisation of all the devolved administrations in Cardiff, Edinburgh and Belfast through “legislative consent motions”.

A Conservative official said that there was likely to be sabre-rattling by the SNP during the process, which could take eight weeks, but said there were hopes that Holyrood would not stand in the way. “It’s common sense. There would be major consequences for Scotland if this wasn’t passed, there would be holes in the law,” he said.

The Guardian’s Andrew Sparrow, earlier this evening:

This is a consequence of what is known as the Sewel convention, which says the Westminster parliament should not legislate on matters devolved to Scotland without the Scottish parliament’s approval.

As we learned earlier in the year, the Sewel convention is just that—a convention—and is not (as far as I believe) enforceable by the courts1. The UK Government, however, has thus far not (as far as I’m aware) overridden a vote in the Scottish Parliament. It seems that it could legally do so but in such a scenario we would be in uncharted constitutional waters.

Update: The Guardian has published an article looking in more detail at this issue. The piece includes quotes from Mike Russell, the Scottish Government’s Brexit minister, and Graham Matthews, president of the Law Society of Scotland.

Revealed: The plan to keep EU workers in Scotland

From this morning’s Herald:

Detailed plans have been drawn up for Scotland to set lower barriers than the rest of the UK for low-skilled immigrants after Brexit.

Experts at the University of Edinburgh believe they have devised with a “politically viable” way of sustaining the net inflows of EU workers currently propping up key industries such as tourism, hospitality and food processing.

The landmark report has been welcomed by the Scottish Government who described the current UK-wide approach to immigration as “damaging to Scotland’s economy”.

Business leaders fear the end to freedom of movement and hardline cuts to UK-wide immigration targets following Brexit will spark crippling labour shortages in Scotland.

You can read the paper—‘Scottish Immigration Policy After Brexit: Evaluating Options for a Differentiated Approach’—at the University of Edinburgh website. It looks at the merits of four main schemes1:

  • Human capital points-based systems, drawing on examples from Queensland (Australia) and Quebec (Canada)
  • Post-study work schemes, informed by the examples from Scotland and British Columbia (Canada)
  • Employer-led schemes, with examples from the Alberta (Canada), Switzerland, and the EU Blue Card
  • Occupational shortage lists, drawing on examples from the UK, Canterbury (New Zealand) and Spain

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.

GVA growth forecasts for 2017 Q1 and Q2

Nowcasting Scotland, Fraser of Allander Institute, 6 June:

  • Our nowcast for GVA growth in 2017 Q1 is 0.22% which, at an annual rate, is 0.87%
  • Our nowcast for GVA growth in 2017 Q2 is 0.23% which, at an annual rate, is 0.94%

These results represent a downward revision relative to last month’s update [link]. In the context of weak economic performance over recent quarters, this suggests that there is little reason to be optimistic about the short-term performance of the Scottish economy.

Is Scotland on the brink of recession?

Fraser of Allander Institute, today:

On balance, it’s difficult to conclude anything other than the Scottish economy remains in a fragile position.

Whether or not it will be confirmed in July that we have entered recession is in the balance.

Given the way in which economies operate (and the statistical data is compiled), some form of bounce back is likely at some point. In the short-term, whilst not impossible, the balance of evidence suggest that this is unlikely.

But whatever the next set of GDP data tell us, what is key is the trend over the long-term.

Talk back in 2008 was for the potential of a lost decade of growth. Since 2006, output per head in Scotland has increased by just over 1% (that’s not an average growth rate, that’s the total increase).

With the new fiscal powers coming on stream this year, getting the economy growing again – and on a sustainable basis – will be vital not just for jobs and prosperity, but also our public services.

Immigration and the UK Economy

Professor Jonathan Wadsworth, senior research fellow at the Centre for Economic Performance, LSE—Immigration and the UK Economy, published today:

  • Much of the recent falls in net immigration are driven either by a rise in emigration or a fall in the number of Britons returning to the UK—things over which the government has very little control.
  • Immigrants do not take most new jobs. The immigrant share in new jobs is—and always has been—broadly the same as the share of immigrants in the working age population.
  • Areas of the UK with large increases in total or EU immigration have not experienced greater falls in either jobs or pay of UK-born workers. The big falls in wages observed after 2008 are more closely associated with the fallout from the global financial crisis than immigration.
  • There is little effect of immigration on inequality and the relative pay and job prospects of less skilled UK workers. Changes in wages and joblessness for less educated UK-born workers show little association with changes in immigration.
  • Immigrants pay more in taxes than they take out in welfare and use of public services. UK-born individuals, on average, take out more in welfare and benefits than they pay in taxes. So immigrants help to reduce the budget deficit. There is little evidence that immigrants have negative effects on crime, education, health or social housing.

On productivity and GDP growth:

Migration acts much like trade in capital, as people tend to move to countries where they can be more productive and earn higher incomes. This increases welfare through greater efficiency in labour allocation across the world. Immigrants also fill the gaps in the skill composition of the national workforce. This fosters specialisation, increases productivity and raises the wages of national workers with complementary skills.

Recent work by Boubtane et al (2015, Table 3) finds that a 50% decrease in the net immigration rate would reduce UK productivity growth by 0.32% per annum. Since EU immigration is half of the current UK total … cutting EU immigrants to 80,000 per year is likely to shave 0.16% off productivity growth. So about a decade after Brexit, UK GDP per capita will be about 1.6% lower than it would have otherwise been.

Merkel’s European Wake Up Call Is Being Answered in the Nordics

Today in independent countries co-operating with each other economically and militarily…

Bloomberg, 29 May:

Sweden, Denmark, Finland and Norway have over the past two years been deepening their military cooperation to counter a deteriorating security situation in the Baltic and the Arctic. They are also forging closer ties on softer issues, presenting this week a joint initiative to meet sustainability goals, promoting the 20 million-person region’s shared values on social equality, and discussing joint interaction with China.

[Finnish Prime Minister Juha] Sipila said there are “a lot” of possibilities to strengthen economic ties across the region, including setting up a single “digital market” and a bio-fuels market.

The Nordic leaders also discussed more joint cooperation in dealing with China, albeit on an “ad-hoc” basis, according to Swedish Prime Minister Stefan Lofven, as well as combating climate change.

“As the most integrated region in the world we have today agreed to further deepen our cooperation,” Lovfen said at a press briefing.

Also, a relevant article from last year: Nordic Nations Deepen Cooperation Amid Worsening Baltic Security (Bloomberg, 27 Sept 2016).

In relation to Scotland, I’ve not yet read the recently published book Security in a Small Nation: Scotland, Democracy, Politics, edited by Edinburgh University’s Andrew Neal, but I intend to do so. Chapters include ‘Perspectives on Small State Security in the Scottish Independence Debate’, and ‘Do Small States Need “Alliance Shelter”? Scotland and the Nordic Nations’. It’s freely available to download in PDF format.

Hurricane Energy’s Lancaster field near Shetland houses 2.3 billion barrels of oil, new figures claim

Insider.co.uk, today:

An independent report has confirmed Hurricane Energy’s own estimates its Lancaster field west of Shetland houses more than 2.3 billion barrels of oil with recoverable resource in excess of 500 million barrels.

The new figures, in an updated Competent Person’s Report (CPR), an independent technical report to assess oil and gas assets published by RPS Energy Consultants, estimates the Lancaster find has 523 million barrels of recoverable oil, up 162 per cent on 2013 estimates.

Hurricane said P2 reserves—those with a 50 per cent chance of recovery—are estimated at 37.3 million barrels for the initial six-year planned Early Production System at Lancaster, due to come online in 2019, which the CPR values at $525 million ([£]404.5 million) over the six years at a 10 per cent discount rate.

Dr Robert Trice, Chief Executive of Hurricane:

“We are delighted to now have independent verification of the highly material uplift in the resources we have at Lancaster. It is also a landmark for Hurricane to have reserves assigned at the field relating to our planned EPS [Early Production System], for which we continue to advance plans, maintaining our target for first oil of H1 2019. We expect to publish CPRs relating to Halifax and Lincoln later in 2017, which we are confident will be a material addition to our already significant resource base.”

Further details here.

Infrastructure and fields West of Shetland
Source: ”Conceptualising a new Infrastructure Hub West of Shetland (WoS)”, Hurricane, 21 May 2015.