Nicola Sturgeon could use ‘Norwegian crown’ after Salmond’s ax call | UK | New
Nicola Sturgeon grilled on her ‘record’ as premier
Former Prime Minister Alex Salmond insisted that an independent Scotland should have its own currency. Party leader Alba believes the world has changed since the 2014 referendum, when he explored the possibility of maintaining a deal with Westminster to continue using the pound sterling. But he says a number of factors, including historically low interest rates, mean now would be the right time to establish a Scottish currency.
Mr Salmond told Times Radio that current economic conditions “would tend to justify switching to a Scottish currency as quickly as possible, because you don’t want to have debt denominated in another currency”.
This appears to be a recognition of the inherent weakness of the SNP’s “sterlingization” plan to informally use the pound without a formal monetary union before switching to a new currency if a number of economic tests are met.
This arrangement would involve the new state issuing a lot of foreign currency debt, and the plan has been heavily criticized by economists as it will likely lead to an economic crisis.
As the SNP prepares to do a big soul-searching, in an exclusive interview with Express.co.uk, Edinburgh Napier University economics professor Piotr Jaworski has left the door open to an independent Scotland using the Norwegian krone as currency.
He made reference to an argument he made before the Scottish independence referendum of 2014, saying that while “it requires further analysis” because Scotland’s economy has since changed, he ” certainly does not exclude this possibility ”.
He previously wrote a comment titled “The best currency for an independent Scotland would be the Norwegian krone”.
Nicola Sturgeon could use ‘Norwegian crown’ after Salmond ax call (Image: GETTY)
Former Scottish Prime Minister Alex Salmond (Image: GETTY)
He explained: “There is a strong correlation between the figures of the oil sector and the economic and political choices of each country. Norway remains outside the EU and the European monetary union. It has its own independent currency, whose exchange rate is determined by the market.
“At the other end of the spectrum, Denmark is a member of the EU and is part of the European Exchange Rate Mechanism II (ERM II). The Danish krone exchange rate is pegged to the euro, making it practically another form of euro. The UK is in the middle: a member of the EU but not in ERM II or the euro.
“If Scotland votes for independence, it will create a completely different economic environment for the two new emerging countries. This new macroeconomic framework will run counter to the objectives currently declared by the governments of the two countries.
“The economy of an independent Scotland would of course be much smaller than that of the new UK. This means that with the same absolute extraction of oil, you can estimate that the sector would contribute over a third of Scotland’s GDP. a smaller new UK, on the other hand, would only contribute something like one percent (mostly coming from the gas fields off the east of England). “
Mr Jaworski concluded in his article for The Conversation: “This suggests that it would be appropriate for the two countries to make completely different economic and political choices. If North Sea oil dominates the Scottish economy even more than in the In the case of Norway, he would suggest that it would be even less inclined towards the EU and the euro than the latter country.
“The logic behind this point is that oil changes the economic cycle of a country. The easiest way to think about it is to think about the effect of the price of oil. If the price of oil is high, a country which relies heavily on oil production. does well and non-producers tend to do worse, because they pay higher prices for their fuel. When oil prices are low, it is reversed. “
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Scottish Prime Minister Nicola Sturgeon (Image: GETTY)
Should Scotland become an independent country? (Image: EXPRESS.CO.UK)
Dr Jaworski told Express.co.uk that while the Scottish oil industry has declined since 2014, his claims could still apply to today’s macroeconomics.
In another interview with Express.co.uk, Ronald MacDonald, a research professor in macroeconomics and international finance at the Adam Smith Business School at the University of Glasgow, cast a shadow over SNP’s plan to retain use sterling in the early years of independence, rather than introducing a new currency.
He said: “The underlying deficit hasn’t changed too much from last year.
“He’s gone up half a percent, I think.
“It is not a sustainable deficit in itself.
“So that they [the SNP] argued in the Commission’s Growth Report that they could manage this by having higher growth if they were independent.
“But they didn’t say how they were going to get it.
“Of course, on top of that you have the coronavirus crisis, which means the deficit is moving forward. It will probably be somewhere in the 20% or even 30% region.
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Professor Piotr Jaworski (Image: EXPRESS.CO.UK)
Professor Ronald MacDonald (Image: EXPRESS.CO.UK)
“It’s a huge deficit.”
Ms Sturgeon’s argument, the macroeconomist noted, appears to be that she can do what other governments do, which is to borrow heavily in financial markets at relatively low interest rates.
However, Mr. MacDonald claimed there was a huge problem with this.
He continued: “Their strategy for an independent Scotland is to have a relatively long transition period during which they continue to use the pound sterling.
“Borrowing in a foreign currency is a very dangerous strategy, especially if you are borrowing the kind of money they are talking about.
“The reason is that if you go to sterlingization, it’s a strictly fixed form of exchange rate.
“The UK has a flexible exchange rate. This means that when you take a shock to the economy, you have ways to adjust the economy to it.
“By adopting the currency of another country, you are really fixing your currency against that currency. And you have no way of adjusting.
“It is not tenable for an independent country.
“I separately argued that this could lead to bankruptcy.
“They haven’t thought about the macroeconomic framework.”