First Minister Alex Salmond has said it many times, most recently in ringing tones during his exchanges on 7 August at First Minister’s Questions in the Scottish Parliament
It’s Scotland’s pound and we are keeping it.
He continues to say it notwithstanding what are the clearest statements from all the main UK political parties that none of them would enter into a formal currency union with an independent Scotland.
Amidst the constant cries of ‘What’s your Plan B?’ there is increasing reference to the idea that, well, we’ll use the pound sterling anyhow, whether the UK government likes it or not. The assertion usually goes together with the claim that there are plenty of countries in the world that use another’s currency, especially the US dollar. The process is known as dollarisation
A situation where the citizens of a country officially or unofficially use a foreign country’s currency as legal tender for conducting transactions.
Panama is often cited as an example of a country that does this.
Wikipedia lists ten countries or territories that use the US dollar exclusively, ranging from tiny Palau, an island republic in the Pacific (population 21,000) to Ecuador (population 15,492,000).
Others are better able than me to evaluate the economic and fiscal arguments for or against dollarisation. But it is interesting to look at the possibility in the light of another claim often made, for example as set out in Scotland’s Future (p. 27) that
We are one of the richest nations on the planet.
While there is no doubt that the SNP’s aspirations for an independent Scotland are high, it is instructive to examine the company ‘one of the richest nations on the planet’ would be keeping if it chose to use the UK’s pound sterling on the same basis that others use the US dollar.
The first thing to say is that most of the countries and territories that use the dollar exclusively are very small. Six of the ten (apart from Palau – the British Virgin Islands, the Caribbean Netherlands, the Marshall Islands, the Federated States of Micronesia, and the Turks and Caicos Islands) have a population way below or scarcely more than 100,000. That may tell you something about the circumstances that normally drive a country or territory to use the currency of another without a political union.
Take out the tiddlers and you’re left with four larger countries – East Timor, Panama, El Salvador, and Ecuador. Here’s how they compare with Scotland on a few basic indicators.
Sources; World Bank, UN Office on Drugs and Crime, Scottish Government (GDP Scottish Government estimate including offshore oil and gas)
Given the nature of data collection in many countries, these figures are doubtless a bit rough and ready. The important point is that the other countries are all very different from Scotland in all sorts of ways, some of which are suggested by the statistics, some not. And most of them chose to use the dollar because of some crisis, a conflict or a collapsed economy. Panama, the most often cited comparator for Scotland, is an interesting case. It was in effect the creation of the USA to protect the Panama Canal and for many years it was cut in two by a US-administered canal zone.
Surely, none of these are countries the SNP would hold up as a role model? Yet they are the ones who use the US dollar in the same way that the SNP may be forced back on the UK pound sterling in the event of a Yes vote.
You can of course find a few places outwith the UK that already use the pound sterling, ranging from the Isle of Man to the Falkland Islands, but in one way or another they are all dependent territories of the UK. Not the role model the SNP aspire to.