By Hazel Lewry
A Bank of England pound hasn’t been a pound for almost 80 years. It fluctuated a little before then, but mainly in line with the bullion to which it was tied. The modern pound provides another reason we need a referendum, a Yes vote, then a quick decision on our future currency.
We live in a time of austerity, the Bank of England pound in our pocket devalues daily, real wages are falling and society’s living standards appear ready to drop off a cliff.
It’s against this background that we have the likes of Mark Tennant of Scottish Financial Enterprise adding his voice to the Unionist backed clamour that “uncertainties” over the future currency and constitution of Scotland are inhibiting investment, specifically that it “might be bad for his sector”. The gleeful Unionist media omitted to inform us that Mr Tennant was previously a Scottish Conservative candidate for the European Parliament and that perhaps his intervention might not have been free from political bias.
His was simply the latest voice added to the already discredited Atherton of Citigroup and others. Mr Tennant does however appear correct that these uncertainties may be bad for his sector, but that doesn’t mean they aren’t good for the rest of us.
With the devastation financial services have wrought, industry’s proponents would do well to remember an old adage: “It is better to remain silent and be thought a fool, than to open one’s mouth and remove all doubt.” Or indeed invite analysis of your industry’s achievements when you represent bankers and financiers.
The reality of our current situation is that Scotland would require a cataclysm of near biblical proportions in order to achieve the same dysfunctional levels Westminster and the financial industry have engineered.
The Union and its fiscal bedfellows have failed so disastrously it’s easily arguable they have effectively devalued the pound in our pockets by a factor of over 250 since the 1930’s. Not by 250%, but to less than one in 250 of its former value. The facts speak clearly.
The pound coined its name from an equivalence of one pound of silver, specifically twelve troy ounces of the stuff. Later it converted to the gold standard. Isaac Newton proposed the value equivalent, about £3.89 an ounce. It was formally adopted in the mid 1800s and the tied value was stable until decoupling. Basically there was about ¼ ounce of gold or 1 lb of silver equalling a Bank of England pound.
When the 1930’s began silver was still around £1.00 per pound, reaching a high about £1.05 that year. As a metal it’s been somewhat inflationary neutral.
In 1930 gold, to which Sterling was actually then tied, was moving towards £20 an ounce, today gold hovers close to £1,100. In 1930 there could be a significant loss to the Treasury if anyone demanded bullion. Decoupling took place with almost instantaneous devaluation.
A US dollar at the time of WW1 was tied to 1/20th of an ounce of gold, currency exchange wasn’t volatile, there was no room for currency speculation. It took £3.89 or $20 to buy one ounce of gold, a little over $5 / £1.
Using the more stable and original silver base with a 1930 comparison, with today’s price of silver hovering around £21 per troy ounce that makes 12 ounces of silver worth around £252, not £1. A similar case exists for gold.
Westminster did this decoupling less than eighty years ago; devaluation of the pound in our pockets was required to make up for the Union parliament’s mismanagement of our money.
House prices are a relevant area to demonstrate Westminster’s fiscal ineptitude. An average house cost about £600 in 1930, when paper cash was tied to bullion. If a Scot had invested that £600 in Bank of England notes and stuck it under the mattress it would hardly buy the mattress today. If they had swapped it for silver and put that under the mattress it would be worth £150,000 – one could still purchase a house.
The inflation adjusted price of silver has been reasonably stable. 12 troy ounces of silver today buys largely what 12 troy ounces of silver did in 1930, the same cannot be said for the Bank of England’s notes. Examining relative worth, the contrasts are damning.
Independent financial sources indicate that £1 earned in 1930 equates to around £190 now, the bullion model is relatively accurate. http://www.measuringworth.com/ppoweruk/
The Unionists of our society are arguing that we continue with this failed model. They argue that we put our faith in Westminster which has devalued our currency since decoupling to such an extent that it is almost without any comparative worth. They argue that although we now have a world where the richest 225 individuals on our planet have a wealth equal to the poorest 4 billion, we should perpetuate it.
Currency manipulation and inflation principally benefit two entities. It benefits bankers or traders and it benefits incompetent governments. It can make big capital wealthier with additional room for market fluctuations and speculation and mask the catastrophes of poor government policy.
This simplified perspective clarifies the reason for these nonsensical statements by financiers and those Unionists with vested interest in the status quo. That otherwise stable wealth didn’t go away, it became severely concentrated in a system these individuals and organisations benefit from perpetuating.
With currency tied to commodity it’s difficult to create massive value swings. Severe instability is harder to engineer and instability is where profit or masking is to be had. It is difficult to gamble and win big when the odds on offer are moderate. When governments gamble and lose, inflation is the answer. Inflation fixes debt problems.
With promissory notes gambling is much simpler, especially when the gambler can significantly influence the real value of that note.
In perspective, before the era of big banking in the centuries between Bannockburn, 1314, and the Treaty of Union, 1707, gold effectively rose from £1.07 an ounce to £4.35, mostly caused by demand outstripping supply. Inflation fundamentally didn’t exist as a societal concern. The price of gold stayed thereabouts until 1945. Between 1945 and the present it has risen to over £1,100.
The change is interesting, in eight centuries we saw gold rise £4, in the last eighty years £1,100. That’s about the boom time of the financial services industry. The losers, that’s almost anyone who saved.
If the Euro was tied to a commodity there would be little issue as each nation would have been required to maintain its own reserves. But the current same system has the Euro teetering in a crisis of liquidity, this is the system that Cameron has vowed to protect.
This same system now has Greeks seeing their property taxes soar and their tax bills being coupled to their electricity supply.
Greeks are not only disenfranchised, they are being removed from the electricity grid in their scores of thousands to pay for the mismanagement and excesses of the government and banks. Greeks must now pay their electricity and their increased taxes on the same utility bill. Greeks are close to complete civil unrest.
The Italians have also just been informed general taxes are to increase. It will be interesting to watch the collection method unfold as we ponder the next nation to fall to the technocrats.
The Scots-English situation with a common currency is similar to, but not quite as pronounced as that of Germany and Greece within the Euro. Unless we decouple from Bank of England issue, we will doom our bright future because we are tied to another Greece.
The Scots currency would, by Westminster’s own commissioned reports, be amongst the hardest in the world, one of the least volatile, one of the safest.
A hard currency, unlike the Bank of England’s increasingly worthless paper, is not open to much speculation. It is therefore arguably less valuable to “financial services”. A hard currency is most often linked to economic stability, to prosperity, to stable and consistent wealth generation.
Scotland already has its own currency, the pound, now linked to Bank of England issue. Our fiscal coupling took place in 1707 as part of the Union Treaty. All Scotland requires is to simply de-couple her currency from the Bank of England and tie it to Scotland, a natural enough process with treaty termination. No different to any Eurozone nation walking away from the Euro, a concept few seem to be having difficulty with until it applies to Scots.
There’s an issue with de-coupling which Westminster is keen to hide. The Scots pound is likely to rise in value even more quickly than the English pound will fall, and the English pound will fall.
De-coupling Scotland’s currency and the loss of net worth is to be fought at all costs by Westminster because that sudden loss of value in Bank of England issue can lead to a situation where governments topple and markets crash.
Money is the fundamental cause of the Westminster fight against Scotland having her own voice.
The City of London and Westminster fear Scotland’s currency will be welcomed in the larger world. They know it will be stronger, McCrone told them so over thirty years ago, and the balance since has only improved in Scotland’s favour. We have added re-industrialisation, green and innovative potentials to our maturing carbon industry.
Having to buy one pound Scots with two pounds English is unthinkable to London, it must be avoided. A situation applying to pounds as exists in North America, where Canadian and US dollars are both accepted with differing values, is like something from a 1960’s Hammer film from Westminster’s perspective.
By their actions it is the self evident opinion of the financial services industry and many within Westminster that the prosperity of countless future generations of both nations must be set aside when weighed against the vested interest of today’s political and fiscal power brokers.
This is why Holyrood would have Scotland’s currency tied to Sterling for a little while after the referendum, long enough to permit measured adjustment, not severe upheaval. It is a good approach. It is an olive branch for our neighbour, a perhaps undeserved demonstration of intergovernmental friendship.
Another fear of individuals like misters Tennant or Atherton, both in financial services, is that this new Central Reserve of Scotland will not be on any stock market, that it will be the property of the realm.
The financial services world fears that a competent new Scots government operating in the black will pass a bill enacting this Scots Reserve. Holyrood might even pass balanced budget amendments and, lord forbid, permit financial institutions to fail. The “sovereign fund” proposal is a potential precursor to such a move.
The days of public underwriting of private gambling in Scotland would come to an end, a perceived “right” of the financial services industry, a right that took it many long years, substantial cash and significant lobbying to win, will be gone overnight.
For the City of London a Central Reserve of Scotland, operated for and on behalf of the people of Scotland whose revenues and profits directly benefit the people of Scotland is not to be contemplated. It would set a precedent that other nations might follow.
The news of recovery in Iceland after debunking the bankers has been effectively muffled, the resurgence in Scotland will not be so easily quelled and the ripples would be much harder to contain.
Ultimately the euro and the pound sterling are examples of the same failed model; the pound Scots once decoupled can herald a new template for national finances.
In de-coupling the pound Scots from this failed system it is difficult to find a downside for Scotland. Our currency will be based on a commodity more valuable than gold, it will be based in energy.
Only a YES vote in the upcoming poll gives Scots an opportunity to stop the perpetuation of a failed financial model, YES is opportunity to change an otherwise bleak financial future.
It’s our choice, it’s our future, it’s our potential. We can make it a bright one.