Much has been written and will be shared again on Scotland’s currency options. Where I’ve written about our currency before, I’ve shown the evidence proving that Sterlingisation literally makes meeting the EU entry criteria impossible and that unilateral adoption of the Euro ( like Montenegro) isn’t a path to EU membership.
My contribution to the conversation this week is a little more whimsical with some Scottish historical trivia, which could still give us food for thought.
History doesn’t repeat, but it rhymes.
Not an Unprecedented divergence
John Ferry is quite right to claim that what the SNP are proposing is unprecedented: deliberately ripping an advanced economy apart from its monetary policy and central bank. However, we know what happens when Scotland and England use the same currency and then diverge: because it’s happened before. ‘Scotland’ and ‘England’ have been sharing currency for longer than you think.
The earliest coins known in Scotland were neither English nor Scottish: they were Roman, brought in by trade with the Roman province of Britannia, which reached north of Glasgow to the Antonine wall. After the Romans left, the Kingdom of Strathclyde straddled the modern border using bronze Northumbrian coins.
In for a penny
However, the first ‘Scottish’ coins were silver pennies made by David I when, In 1136, he captured Carlisle, including its mint and nearby silver mines. He struck silver pennies, which were almost identical to the English. The obverse design was almost exactly the same, the only difference on the face side being a portrait in profile instead of face on.
For around two centuries, Scottish and English coins were, for all intents and purposes, the same. They were the same weight, materials, denominations and values – so both circulated freely. After all, that makes sense when you’re on a small island and want to trade.
The Scottish kings started to devalue.
Debasing the Unicorn
David II of Scotland ended the parity between Scottish and English coins, devaluing the Scottish currency due to financial pressures. This harmed trade and caused more friction: resulting in an English proclamation banning the lower-quality Scottish coins from their country in 1356. Robert III doubled down on the devaluation. First, debasing the metal until the coins were worth half the English counterparts by 1392. Second, by changing the design – moving from a profile portrait to a forward one- closely copying the English coins.
(Essentially, he was making cheap knock-offs, but records are unclear if he sold them down the barras…)Robert then looked to force the Scots to redenominate
“Ordinances required Scots to turn in their old coins in exchange for new issues struck to a lower standard, …thereby providing a profit to the king.”
Perhaps the common folk were told it was a continuation and not really a change? After all, it was still ‘oor pound’ But this pattern – where the Scottish Government forced the Scots to redenominate, proved such a source of revenue for the Scottish Kings that they did it again, and again, and again- some of them up to 8 times in a reign. This deliberate driving down of the Scottish currency continued for some time.
Historians believe it was in this period that London cabbies first started refusing to take Scottish cash…
Scots pounds imitated the design and terminology of the English coinage, while the debasement of the actual gold and silver meant they were worth less and less. This contributed to an ever-increasing menagerie of Scottish coins. Many borrowed the names of coinage from other realms, but not the worth. At various times there were Merks, Bonnets, Bawbees and Unicorns. Groats, Placks, Ryals and Lions.
United in a Unit
Following the Union of the Crowns, our currencies were realigned. A new coin was issued ‘the unit’ worth £1 English …and by that stage worth £12 Scots! That exchange rate is still reflected in the language today. The Scottish Gaelic word for penny is peighinn. But in modern Gaelic on penny is sgillinn (literally shilling) because the Scottish Government had devalued our currency so far from parity that one shilling Scots exchanged for one English penny.
So What does that tell us about now?
What’s being proposed now isn’t on the medieval gold standard. Ripping apart our shared fiat currency in our integrated economy, Losing our central bank, being paid in a different currency from our mortgages… all these things and more add a lot of complexity, a lot more downside risk.
When the currencies were realigned, Every English pound bought 12 Scots ones – Perhaps the SNP are hoping for a similar rate so they can at least appear to meet some of their uncosted promises on paper – After all, if a £1,200 £SCO pension is only worth £100 £GBP it might actually be affordable. And we should take warning at the glacial speed of Scottish Civil Service reform. The Mint in Edinburgh stopped minting in 1709 …but retained permanent officials in paid jobs until 1814
However, we can maybe see some broad strokes of a pattern.
- A different, devalued currency from a significant trade partner causes friction and distrust.
- The heads of the Government will look after themselves and even seek to profit.
- The little folk always bear the costs of redenomination.
For knowledgeable modern analysis of the unanswered questions and downside risks please look to, for example, Blair McDougall in notes on nationalism, here with ten questions they need to answer , John Ferry on economics , Sam Taylor of These Islands with a detailed paper on currency and Kevin Hague also of These Islands, and world-renowned Glasgow economist Ronald McDonald.
But perhaps you prefer to hear from John Swinney and Nicola Sturgeon themselves.