Skip to content

Is someone offering us a democratic monetary policy?

Supporters of independence have not come up with compelling answers on the question of currency and its implications for monetary policy. But if supporters of the union think their case for our influence over monetary policy is any more persuasive they are wrong.

It is difficult to write about contemporary Scottish politics while trying to maintain an even-handed approach to the constitutional question – but on the other hand, the constitutional debate keeps throwing up interesting points relevant either to an independent Scotland or to Britain (although the questions remain different in each case). So today it seems to be about the Bank of England. Again.

The question that has been put to the independence supporters is how can a country really consider itself independent if its monetary policy is set in another country? If Scotland retains Sterling, can we even manage an independent fiscal policy at all? And does this blow a hole in the fundamental case for independence – that Scotland could do things differently, which (with no power over monetary policy and potentially little power over fiscal policy) it might not be able to.

One important point to note is that the analysis of conservative economists (routinely referred to as ‘mainstream’ or ‘respected’) almost always concludes that everything is impossible. So much modern economic ‘thinking’ results in a statement that opens ‘you can’t…’ when in fact in many occasions you really can. You might not want to, you might regret it, but you can. Monetary policy may restrict the scope of variation in fiscal policy, but it is wrong to take that conclusion to its end point – that any two entities existing under the same monetary policy must therefore have the same fiscal policy. To demonstrate that we don’t need to get into the politics of the European Union, we just need to consider the wide range of policy approaches taken by different States in the US. So the ‘sit down and do what you’re told children’ approach doesn’t persuade me.

But still, there is a real question for supporters of independence here and it seems to me that in the categories of issues they face (one’s they should ignore, ones where they should fight back, ones where they should perhaps think again) this seems to me to be a ‘keep thinking’ option. I find myself increasingly dubious that a long-term future for Scotland lies either tied to the City of London’s personal currency or the European Central Bank’s personal currency. The safety-first of saying ‘we’ll keep Sterling’ makes political sense and it makes real-world sense. For a while. But it is a genuinely big question and there do not yet seem to be compelling answers.

However, the questions do not stop at the door of the independence supporter. The unionists make the simple claim that Scotland will be worse off if it has no say in monetary policy. I agree. I also think Britain is worse off for having no say in monetary policy. That the unionist side talks like monetary policy is in some way democratic and that in some way anyone outside the financial elite has any say whatsoever is an utter fallacy. Stop and think about it – imagine you, everyone you know and everyone they know all thought the policy on interests rates or quantitative easing was wrong. So what? What could you do?

The Monetary Policy Committee of the Bank of England is ‘independent’. In reality, it is independent like Monaco is independent – a separate city-state required to answer to no-one. It (and the wider Bank) got most things wrong in the run-up to the financial crisis. The voice or two on the MPC dissenting from the incorrect views and assumptions of the great City State of Finance were marginalised and ignored. And when it became clear the Socialist Republic of Big Money (socialist for them at least) had got it massively wrong, nothing happened. Nothing.

So for those who want to paint this picture as a case of influence over monetary policy versus no influence over monetary policy better spell out their reforms now. As it stands, Greenland or Namibia have about as much influence over UK monetary policy as do I or you or Scotland or Britain for that matter. And since so many people are quick to make clear that fiscal policy is only as variable as monetary policy allows, presumably then they would be ready to accept that Britain itself has little control over its fiscal policy – since monetary policy is set by an independent committee with no democratic reference to Britain (never mind Scotland).

The Yes campaign needs to be cautious about trying to duck this question and also about trying to pretend it isn’t a question or to find a simple-sounding get-out clause. But the No campaign (or at least the bits which are not explicitly in the business of protecting in perpetuity the unrestrained power of City of London financiers) had better stop talking like Britain is a democratic utopia and face up to the reality. Are you offering us a democratic monetary policy? Great, I’d vote for it tomorrow. Or do you want us to believe we already have one? Because that would simply be dishonest.

Robin McAlpine