Mike Hedges asks how long a shared currency would last if Scotland chooses independence
Countries splitting up has happened throughout history – some have been amicable, others less so. Often the issue of currency plays a part in determining the nature of the split. We have a fairly recent example of an amicable divorce by two countries when Czechoslovakia divided into the two new countries of Slovakia and the Czech Republic. Initially the old Czechoslovak currency, the Czechoslovak Koruna, was used in both countries following the dissolution of Czechoslovakia on the 31 December 1992.
Tomorrow: Alan Trench suggests ‘Devo More’ could be a halfway house between the status quo and independence
However, by the 8 February 1993, the Czech Republic and Slovakia had adopted their own national currencies in the form of the Czech Koruna and the Slovak Koruna. At the beginning, the currencies had an equal exchange rate, but later on the value of the Slovak Koruna was as much as 30 per cent lower than the Czech Koruna. The Czech and Slovak joint currency lasted less than 40 days. Why would anyone expect a British and Scottish joint pound to last any longer?
In 1922, when the Irish Free State broke away from the rest of the UK it had its own had a currency, the Irish Punt. During the days of fixed exchange rates this was pegged to the pound sterling. Following the advent of “floating” exchange rates, the value varied against the pound sterling until Ireland entered the Euro in January 2002. In the days of fixed exchange rates it was relatively easy to peg one currency against another but it meant Ireland relinquished control over the value of its currency to the bank of England. Under floating exchange rates a currency will reach its own level and following the end of fixed exchange rates, at various times, the Irish punt was worth more and less than the British pound.
The most recent split was when Sudan split into Sudan and Southern Sudan. Sudan has the Sudanese pound whilst South Sudan has the southern Sudanese pound as the official currency of the Republic of South Sudan. It was approved by the Southern Sudan Legislative Assembly prior to secession on 9 July 2011 and it was introduced on 18 July 2011, replacing Sudanese pound as the national currency but initially at the same value. Sudan’s president announced a new currency, a day after newly independent South Sudan confirmed it would do the same, as both states worked to disentangle their economies after the split. It was considered crucial the two countries coordinated their currency launches closely, to avoid future disputes between the two former foes. South Sudan’s Central Bank governor Elijah Malok told Reuters that “the key issue was how the south would now redeem up to 2 billion old Sudanese pounds still circulating in its economy”.
Am I the only one who sees the same issues arising between an independent Scotland and the United Kingdom of England, Wales, and Northern Ireland, the UK?
For Scotland, the alternatives seem to be to have a Scottish Pound or for Scotland to enter the Euro. However, we know that enthusiasm to enter into the Euro has declined since the debt crisis that has occurred in several European nations.
New members of the European Union also have to join the Euro and adopt tougher European Treaty obligations on border controls, crime and security. Even if Scotland was to join the European Union, it would have to join on the terms offered to new members and not rely on the current agreement reached between the UK and EU.
Now let us assume that, despite everything we know, Alex Salmond is correct and Scotland can continue with the pound sterling. This would mean the value of the currency in the remainder of the UK would be affected by decisions over which the Westminster chancellor would have no control. Surely the simplest and easiest solution would be to allow Scotland to have the pound sterling and to create a new currency, perhaps called the British Pound or UK pound that would obviously start at parity with the old currency but then the currencies would find their natural levels. Almost certainly, as happened between the Czech republic and Slovakia they would have have different values very quickly.
So whatever occurs the most likely, I would say near certain, occurrence would be that the two independent nations would have different currencies.