By Martin Kelly
The Governor of the Bank of England has said that the institution will implement any currency arrangement negotiated between a newly independent Scotland and the remainder of the UK.
Mark Carney was speaking at a press conference given during his visit to Scotland in which he met with First Minister Alex Salmond.
Speaking to business leaders, Mr Carney listed out some of the possible advantages and disadvantages of a currency agreement between the rest of the UK and an independent Scotland. The Bank of England Chief told his audience that a currency union could work but that safeguards would have to be agreed between both sides which would mean the ceding of some power.
In his speech, that the Canadian was at pains to stress was neither an argument in favour of or against independence, Mr Carney spelled out some of the technical issues that a currency union would be required to address.
On the benefits of a currency union, he said: “Sharing a currency can promote investment by reducing uncertainty about currency movements and giving businesses access to deeper, more liquid financial markets.”
Mr Carney added: “Sharing a currency also helps promote integration. It does so by eliminating one of the barriers between markets, improving transparency of pricing and increasing competition. Sharing a currency can also help to increase the mobility of labour and capital, raise trade in goods and services, and improve the flow of technology and ideas.”
One of the downsides of such an agreement for Scotland, he said, would be that its government would be unable to devalue the currency in order to help exports. On the issue of economic divergence, he said that similar economies were not always guaranteed to create a successful currency union, but that neither were diverging economies guaranteed to result in failure.
The head of the Bank of England also touched on areas of common travel, business costs and worker migration in a speech that was well rehearsed and sought to cover some issues already contested by both sides of the independence debate.
Highlighting problems in the Eurozone, the Bank of England Chief stressed the need for a robust agreement in order to ensure structures were in place that would prevent the problems that hit the European single currency, from being repeated.
He also insisted any agreement needed to ensure minimal disruption to business.
“Scotland and the rest of the UK are highly integrated. 70% of Scottish exports are destined for, and 74% of imports into Scotland come from, the rest of the UK.” He said.
In his post speech Q/A Mr Carney skilfully batted away several loaded questions from journalists, including BBC presenter James Naughtie, apparently designed to elicit answers that might serve to undermine the Yes campaign.
On the issue of fiscal constraints, something that would be necessary in a currency union, he pointed out that all countries operate under such conditions already.
“Every government wherever they exist anywhere in the world has constraints on their fiscal policy, from markets and budgetary realities.” He said, but added that there may be “additional considerations” to be addressed.
Asked to clarify what he meant when he said a currency union could result in a loss of some sovereignty, Mr Carney cited ‘fiscal rules’ and other agreements such as ‘deposit guarantee schemes’ between the parties in the union.
Asked if a currency union could work, he gave a guarded answer, simply confirming that the bank of England would implement any post referendum agreement.
Mr Carney also rubbished suggestions that he had said an independent Scotland would be too small to host a bank like RBS.
“That’s not what I said in the speech”, he told his questioner and explained that all countries needed to ensure that institutions did not become so large that they could not be allowed to fail.
“It is in the interests of all countries to sever the link between banks and sovereigns by ending too big to fail. Governments must put in place regimes that impose losses on bank management, shareholders and creditors rather than taxpayers.
“That is exactly what is established by the UK’s recent Banking Reform Act, and the recently agreed European Bank Resolution and Recovery Directive.
“The Bank of England is at the forefront of efforts to establish the common global requirement that is needed to finish the job.” Which said Mr Carney, should mean that taxpayers no longer have to bail out banks.
Welcoming the Bank of England Governor’s speech, SNP MSP Kenneth Gibson, who convenes the Scottish Parliament Finance Committee, said:
“The Governor of the Bank of England has made it perfectly clear that he will implement what is agreed between the Scottish and Westminster governments, should we achieve a Yes vote in September – underlining that a sterling area between an independent Scotland and the rest of the UK is entirely achievable. Or, to quote Alistair Darling, the head of the No campaign, a currency union between the two independent countries is ‘desirable’ and ‘logical’.
“It is time for the UK Government to accept that common sense position – which is also backed by 71 per cent of people in the rest of the UK.
“The UK Government has already accepted the common sense position on Westminster’s debt, and in light of the Governor’s speech there is no reason – other than trying to spread uncertainty on behalf of the No campaign – not to take the same sensible approach in relation to currency. Presumably they would wish Scotland to pay its share of the UK’s debt in pounds, after all.
“Under devolution, Scotland controls just 7 per cent of our tax revenues. The difference a Yes vote for independence makes is that we control 100 per cent of our nation’s abundant resources, so that we can implement economic and social policies which reflect our needs and priorities – such as on childcare, North Sea revenues, corporate tax, air passenger duty, pensions and benefits.
“Very many successful and fully independent countries share a currency in the 21st century, including France, Austria and the Netherlands – and a sterling area would be in the overwhelming interests of the rest of the UK as well as an independent Scotland.”
Head of the anti-independence, campaign Darling said: “There is one clear message from today’s thoughtful speech by Mark Carney the Governor of the Bank of England – that the failings of the Eurozone show that to have a successful monetary union you require fiscal and political union.
“This is a detailed speech but make no mistake, the governor’s judgement on currency unions is devastating for Alex Salmond’s currency plans.
Mr Darling added: “The governor has spelled out in stark terms the problems of a currency union – above all it needs people living in the rest of the UK to agree to something they have never been asked about.”