Electronic currencies are coming. Bitcoin, for all the fears over fraud and fretting by regulators, has lasted six years and is increasingly been seen as an alternative payment system. Paypal and Apple Pay are not yet currencies – relying on users having conventional bank accounts – but could easily become so.
Some towns and regions also have their own currencies. There is the Bristol Pound, the Lewes Pound, the Brixton Pound, the Totnes Pound and the Stroud Pound. So why shouldn’t Scotland have its own currency?
No reason at all, says the New Economics Foundation (NEF), a respected think tank which specialises in alternative ideas intended to redress the balance between the haves and the have nots. Together with the Common Weal, which grew out of and then grew away from the Jimmy Reid Foundation, they have put forward a proposal for a ScotPound.
Their idea is that the Scottish Government should set up a new “bank” – which they name in cod Gaelic BancaAlba – which then issues £1bn worth of ScotPounds, distributed free to every adult Scottish citizen at the rate of 250 each.
ScotPounds (S£) would be equal in value to sterling pounds, but not convertible. You could only spend them in Scotland to pay your taxes or other levies or in businesses which accept them.
So far so good. There is no reason why this can’t be done. Other places have done so, not only the English towns listed above, but the island of Sardinia, the Prien am Chiemsee region in Germany and the Berkshire region of Massachusetts. Nor is it unknown for nations to have two currencies. Cuba has the convertible tourist peso, pegged to the dollar, and the domestic peso, worth substantially less.
The question is not whether it is possible, but why would you want to do it? In the examples of the English towns which have introduced their own money, the local pound is not a currency in the usually accepted sense, but closer in character to loyalty points like Tesco Club or Nectar or air miles. They hope to boost local businesses by encouraging people to shop locally – in fact you can’t use the money to shop anywhere else.
If that is all the ScotPound hopes to do, then it may in a very small way succeed. But NEF and Common Weal make some pretty exaggerated claims for the proposal, which do not bear much examination.
The first is that it would boost economic activity. Although the report wrongly estimates the size of the Scottish economy as £240bn (the real figure is around £100bn less than that), even so the distribution of £1bn (less than 1% of GDP) of new money would not make a measurable difference.
For comparison, the Bank of England has pumped £375bn into the UK economy (over 20% of UK GDP and equivalent to around £32bn for Scotland) and we have still had the slowest recovery from recession since the 1930s.
The second is that it would be socially inclusive. Payments in S£ would be by the use of an app or text, which excludes those who can’t afford, can’t use or don’t want a mobile phone. The report suggests that if we all donated our old phones Scotland could become the world’s first 100% smartphone nation, but does not explain how the texts or data are to be paid for.
But the larger question is whether distributing S£250 to every adult is inclusive or actually regressive.
Like free tuition fees, free prescriptions, free bus passes and free bridge tolls, it sounds an equality measure, but in fact a large part of the money goes to people who are better off and don’t need it. That uses resources which could be targeted to measures which reduce disadvantage and promote equality.
At the core of the report is a misunderstanding of the role of commercial banks. They don’t create money, as the report suggests, they create credit, which can be both a force for good and, as we saw in 2008, the cause of disaster. The only bank which can create money is the Bank of England, which has been doing so in spades with the QE programme.
A more profitable argument might be whether that newly created money has been used properly by purchasing government bonds to help fund the deficit and shore up the balance sheets of banks? Jeremy Corbyn’s proposal for a “people’s QE”, which the FT’s Martin Wolf for one thinks might be a decent idea, could have a much bigger impact.
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