From City AM:
If Scotland left the UK but kept the pound, and was cut off in every other way, it would end up like Ecuador, El Salvador and Panama.
These economies are dollarised (Scotland would be sterlingised); they use the greenback but don’t benefit from a banking union or any other kind of assistance from Washington or the Fed.
In the event of a banking or sovereign crisis, they wouldn’t be bailed out by anybody; and they wouldn’t be able to print any money themselves as they don’t control the currency.
If you have a banking or "sovereign" crisis (whatever that is), you are doomed anyway, this is an opportunity to chuck everything in the bin and start again.
See for example Germany in 1948, they just started all over again with the DM, which was a resounding success. If you are stuck in a currency union, this gets a whole lot nastier/trickier, as the PIIGS have found out.
And as he goes on to explain, the lack of a safety net/moral hazard has led to all-round better outcomes in those named countries anyway.
The point is though, anybody can "print" any amount of any currency he likes, because "printing" ultimately means "borrowing". When you take out a loan, you are "printing money". Bank notes, cheques, IOUs are ultimately all the same thing.
The only limiting factor is your credit rating and people's willingness to lend to you, and the fact that you are not in a formal currency union with a Bank of England safety net (which is purely for the benefit of banks and not the country as a whole) is no particular barrier to using Sterling or something bloody close to it - see for example Isle of Man or The Republic of Ireland until 1978.
Friday, 14 February 2014
From City AM: