An answer to the Scottish currency question

One of the things I fail to understand about the Yes campaign for Scottish independence is their determination to retain sterling. OK, it may mean greater stability in the short term but so would remaining part of the UK. If we’re throwing off the shackles etc. etc. then why retain the shackle of handing our monetary policy over to someone who doesn’t have our best interests at heart? Salmond isn’t stupid so there must be another reason. The only conceivable one I can think of is that it’s a short term tactical play because every time Westminster says that they won’t let us use sterling, support for the Yes campaign rises.

However following the news that Ecuador is to issue its own digital currency, I think I’m beginning to see what could be going on. Ecuador, we should note, uses the dollar and will continue to do so, in parallel to the digital currency, for the time being. This gives it both stability but also a degree of monetary control, with regards to domestic use of money at least, that it currently doesn’t have and it also allows it to ‘buy back’ dollars in circulation, building up currency reserves.

If Scotland retains sterling or adopts sterlingisation, but at the same time issues a parallel digital currency then it could save a considerable amount of money in the short term. Introducing a new physical currency costs both the public and private sectors a lot – in Lithuania, a country with a population just over half the size of that of Scotland, the one off costs of switching to the euro in 2013 were estimated at between €0.17bn and €0.26bn. In the Netherlands (three times the size of Scotland) it cost around £3.2bn.

Assuming that eventually currency will go digital everywhere, introducing a new physical currency for no more than a decade or two seems like an unnecessary expense. Even if it doesn’t, introducing one for five years before introducing the euro (a probable condition of Scotland rejoining/remaining (delete as applicable) in the EU) seems verging on the frivolous.

Sterlingisation for the time being but adopting Ecuador’s approach could be the way forward.

On top of that, one of the things Scotland urgently needs to do is build its industrial base in preparation for the day when oil runs out. There is currently a big push towards encouraging new technology companies, both start-ups and more established ones. Making Scotland one of the fore-runners in the digital money space works well with that narrative.