Professor Brian Quinn, formerly Deputy Governor at the Bank of England has fired a damaging salvo at the SNPs post-independence currency union plan. Or perhaps a cruise missile is more (or less) appropriate today!
He said the move would introduce “administrative complexity, confused governance and flawed decision-taking” into Scotland’s financial system. He goes on to say that sharing power between two sovereign states in such a way would lead to a “muddle”. “Trying to stand astride two horses heading in diverging directions could lead, sooner or later, to an expensive accident. Public officials cannot serve two masters in areas that are crucial to the safety and security of the state without giving rise to real risks,”
This view follows similar concerns by Professor Armstrong and reflects the views I set out in earlier Red Paper publications and will be developed in my chapter in our forthcoming book.
The significance of Brian Quinn's comments are that he is a very credible commentator. As Bill Jamieson points out in today's Scotsman, Brian Quinn is not just another opinion.
"He is honorary professor of economics and finance at Glasgow University, having been head of banking supervision and executive director of supervision and surveillance at the Bank of England and served as deputy governor. He was for ten years a member of the Basel committee of banking supervisors. After retiring from the Bank, he was appointed adviser to the Monetary Authority of Singapore and to the central banks of Chile, Colombia, Venezuela and Malaysia on banking supervisions and crisis management. He also worked with the International Monetary Fund, the World Bank and McKinsey as a consultant on financial supervision in several countries. He is hardly “just another opinion”."
Bill's piece also covers another aspect of Brian Quinn's comments, the impact on the banking system. Another area he is well qualified to comment on.
The detail of this key area will all be left to post referendum negotiation. As Bill Jamieson puts it, "the vital terms and conditions of an independent Scotland’s membership of currency and monetary union together with arrangements for the regulation and supervision of Scotland’s banks would still need to be negotiated and agreed – and all of this after the referendum vote, leaving the proponents of independence asking Scottish voters to agree a “Trust Us” carte blanche manifesto."
The problem for SNP strategists is that the alternatives are politically difficult. The Euro is not exactly in good shape, comes with its own strings, and we probably wouldn't meet the entry criteria anyway. We could tag along with the pound or the Euro, dollarisation as it is known. Having spent my summer holidays in Montenegro, it works on a practical level, but you are left with few economic levers as they have discovered to their cost.
Finally you can go with an independent currency. An option advocated by Jim and Margaret Cuthbert in their paper for the Reid Foundation. This has its pros and cons economically, but has huge political problems selling an unknown currency to the voters.
Rock and hard place doesn't begin to describe this problem for the Scottish Government.