via Menzies Johnston This CU issue is getting right boring now The whole debate about currency is just a distraction that is easy to pull for the No camp as the reasons there will be one are boring and not easy to find or understand for many people. Unless you take the time to study a chunk of Economics(and who wants to do that !) its an easy thing to believe a lie about. This piece is an excellent one about it and not too difficult to understand. credit goes to Jim Dolan (I think) feel free to share. The truth is that Sterling hasnt crashed because it still, presently very substantially, benefits from Scottish exports contributing to the UKs overall balance of payments. Upon Scottish indy and if iScotland withdrew from the Sterling Zone then Scotlands exports will no longer contribute to the rUKs balance of payments, resulting in the rUK BoP deficit doubling from around 5% to around 10% of GDP. It is for this reason and to protect against capital flight from the Sterling Zone the the BoE will be a Lender of Last Resort to iScotland. Here, rUK would continue to benefit from the Sterling Zone with Scottish Exports, as she presently does. However, without Scottish Sterling Zone exports, an overnight doubling, after 25th March 2016, of the rUKs BoP deficit would be catastrophic for sterlings value and, in all likelihood there would be a run on the pound as the money markets attempt to dump Sterling. The run would only exacerbate international downward pressure on the pound, too much Sterling sold floating around the international and domestic money markets, upsetting the pounds exchange rate. The £ value would suffer and with it the BofP of which the value of the pound is the exchange mechanism in imports/exports. Thats why, and one of the reasons of, the sensible 18 month time gap between YES and actual Indy. This is so rUK adjusts to losing 10% of its economy, its new debt ratio of 115% of GDP, at the same time keeping Scottish exports in the Sterling Zone with a £CU as part of the pounds BoP with other countries. In short, Scottish exports are required by the pound and crucial to its value pounds balance of payments. However if it continued to reject a currency union (which Westminster wont) beyond 03 2016, and did not sort a deal rUK will attempt to mitigate the dumping of the Pound by the international market in a crisis. This would be catastrophic for economic growth in across the Sterling Zone. To mitigate, rUK Treasury will hike interest rates ACROSS THE ZONE but only taking pounds from the domestic financial markets in an attempt to stabilise the £, but it will fail just as it failed during the infamous Black Wednesday. It would not stop international investors selling the pound, known as shorting the market. In short, the pound desperately needs Scottish exports to help keep down the BoP deficit. This is why BoE, said LoLR to iScotland. This was to reassure investors and the money markets, so to prevent capital flight. Also, after YES she will negotiate its fair share of the UK debt (minus assets). This debt will be repaid to the UK Treasury, NOT to the money markets. It is inconceivable that the rUK would wish that debt to be paid back in anything other than the pound Sterling thereby, ipso facto, bringing about a currency union. Practically the rUK cant of course, reject a Sterling Zone. If it does that then it will be blowing HUGE holes in its feet. I suspect, however, upon a YES result in the indy referendum common sense, will prevail and a pragmatic solution will be sought. Just as described by Nic Watt who interviewed the a government minister: youtube/watch?v=pS774LSewgk&feature=youtu.be The solution is a Sterling Zone. Its every bit beneficial to the rUK as it is to iScotland.
Posted on: Fri, 08 Aug 2014 00:19:11 +0000
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