Alberto Mingardi  

A central bank for Scotland?

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2014 will probably be the year when Scotland and Catalonia vote for their independence. The Catalonian referendum is strongly opposed by the Spanish government, and a date hasn't been set yet. In this old op-ed for the New York Times, Catalonia President Artur Mas elegantly explains the reasons that motivate the Catalonian wish to secede. I think he hit the right nerve, when he asks simply "the freedom to vote", as "In Europe conflicts are resolved democratically, and that is all we ask".
We are sometimes vote-intoxicated: we live in countries that consider voting the legitimate means for collective decision making for everything but the extent and the boundaries of the very political community that is supposed to make decisions by voting. The bureaucratic apparatus is happy to have people decide democratically on other peoples' money and lives, but not to the ultimate question of the survival of a nation state in its current geographical form. Too often secessionist movements are kicked out of the "respectable" public debate by quasi-religious appeal to the apparently immortal value of "national unity". Mr Mas cleverly takes advantage of the political symbols of democracy, against the political symbols of national unity.
In his article, however, it is also clear that Catalonia would like to secede from Spain--but to stay within the EU and the Eurozone.
The other day Martin Wolf wrote instead on Scotland and the British central bank. The Scottish referendum is set for September 2014. Wolf fears that the UK and Scotland may end up being two nations under one same central bank, making for a "Pound-zone" that mimics the Eurozone on a smaller scale, and thus maintains that

The rest of the UK must, however, insist that the central bank stays entirely accountable to its own parliament and government, not to some complex and almost certainly unworkable binational contrivance. An institution accountable to two masters is simply unaccountable.
Wolf writes that "UK has surely not escaped the horrors of the eurozone only to create similar horrors for itself at home". He seems to associate the horrors of the eurozone crisis to the fact the ECB does not obey a single political master, and thus its piecemeal interventions in the crisis management process needed to pass by a slower and longer process than the one typical of a central bank that operates following (in a more or less open way) a government's desiderata.
Without necessarily agreeing on the point, what would happen of an independent Scotland, from this perspective, is indeed a fascinating question. If ever Scotland goes its way, libertarians may try to appeal to the Scots' pride, reminding them of an interesting and successful experience of a few decades ago (see this classic work by Larry White).

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CATEGORIES: Eurozone crisis

COMMENTS (6 to date)
Dylan writes:

Does anybody have a short summary of White works? It certainly seems interesting, but almost 200 pages is too long for me.

BTW, as a catalan libertarian I'm highly suspicious of the separatist movement here: it is overwhelmingly collectivist, nationalistic and it overlooks the spending and deficit problems of the catalan government. Also separatists here are obsessed with the local language (catalan), up to the point that it is mandatory by law to have everything in your business in catalan.

It goes without saying: I'm suspicious as well of extreme spanish nationalism.

John S writes:


The heart of White's book is Ch. 2, "Free Banking in Scotland before 1844." It's only 20 pages. Alternatively, you could read his chapter on Scotland in "The Experience of Free Banking." I'd highly recommend the chapters on Canada and the US also.

The Experience of Free Banking

mobile writes:

The U.S. central bank is also effectively the central bank of Panama, Ecuador, Bermuda, El Salvador, Costa Rica, Belize, and a long list of island nations that all use the dollar exclusively or that have maintained a fixed exchange rate with the dollar. This arrangement can benefit all the countries involved, even if not a single American worries about, say, inflation in Uruguay or unemployment in Barbados. Feelings of nationalism aside, it's plausible that Scotland could also benefit from being a passive participant in a Pound zone.

Dan S writes:

The issue is not about serving two masters (the dollarzone gets along just fine with 50) but about having a currency union without a common deposit insurance scheme. You don't want a situation where a hint of trouble in Scotland causes bank runs there and everyone tries to put their money into a safe English bank, thus creating a self-fulfilling panic, and even if disaster is averted, Scotland falls into a semi-permanent recession or even depression as it is forced to "internally devalue" relative to England.

John Thacker writes:

Technically, Scotland has no legal tender right now. There are Scottish pound sterling notes issued by three banks (Bank of Scotland, Royal Bank of Scotland, and Clydesdale Bank), all of which are retail banks, not a central bank. All of them have deposits with the Bank of England justifying the notes that they print. Bank of England notes are not technically legal tender in Scotland either.

Despite this, they circulate freely in Scotland, and English people will (if reluctantly) even take them in England.

Bedarz Iliaci writes:

There is no paradox. Certain questions are pre-political in essence and are not easily resolved by normal political process. Such as whether the country should be a communist one or libertarian one. Or whether it should have a monarch or a republic. Or whether slavery should be allowed or not.
These questions normally take a war or a revolution to work out. Politics is usually to decide relatively trivial questions--tariff rate or who shall be the prime minister this year.

The extent of the political entity is one of those questions that can rarely be settled politically.
Indeed, it is only that the European nations have a supervening entity over them -the European Union-that the possibility of a political resolution is even considered. It is a great achievement of the European Union, actually.

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