Currency is still the Achilles heel for Scottish pro-independence campaigners. Alex Salmond, the leader of the pro-secession cause, used a second televised debate to sketch out some plan Bs for what has become a key issue – what happens if voters approve independence on Sept. 18 but he fails to convince the rest of the U.K. that Scotland can retain the pound in a full currency union. His alternatives all sound iffy.
Mr. Salmond’s strategy all year has been to insist that a “yes” vote will be followed by an agreement for Scotland to keep using sterling as its currency, retaining the Bank of England as lender of last resort for its outsized banking system. The Scottish First Minister may be right that the rest of the U.K. will not simply cast Scotland’s money and its outsized banking system adrift. But, as he found in losing a previous debate on Aug. 5, cavalier confidence does not garner support from undecided voters.
Unfortunately, Mr. Salmond’s plan Bs don’t sound serious. He talked breezily of an independent Scottish currency, echoing Norway or Sweden. Yet Scotland will probably start life with a budget deficit that would make it vulnerable to speculative attack. The threat will complicate any efforts to spend more on areas like health care – especially as Scots depend on volatile oil revenue.
Mr. Salmond also spoke of a peg to sterling, mentioning an equivalent arrangement Hong Kong has with the dollar. But a peg only works when it is credible, backed by sound government and enough reserves to dissuade would-be attackers. An independent Scotland would start life with little money in the bank, while Hong Kong’s foreign currency reserves are substantially more than its GDP.
Polls suggest that current undecided voters will determine the results of the referendum. They will not be comforted by the offering of such non-starter options as realistic alternatives to currency union. And the doubters might consider that even if a currency union does materialize, Scotland would have minimal input on rate setting and even less scope for fiscal transfers. Mr. Salmond may have done better in the latest debate, but he’s only preaching to the converted.
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