How can Salmond argue Scotland shouldn’t have its own currency?

Bawbee. Groat. Merk.

Until now, these fine words would be recognised by few, apart from obsessive scrabble players. This really ought to change, in the run-up to September 2014’s plebiscite on Scottish Independence: for these were units of Scottish coinage, abandoned more than 300 years ago when that proud nation’s disastrous investments in Central America led to its being rescued by the government in Westminster, at the cost of its independence.

You would think that Alex Salmond – and indeed the entire Scottish National Party of which he is such a formidable leader – would want to regain monetary independence, as part of a successful campaign for full self-government. Amazingly, you would be wrong. While necessarily reversing (with accustomed brazenness) his previous firm position that an independent Scotland would join the euro, Salmond’s campaigning position is now that the pound sterling would be retained, following a “yes” vote in the referendum.

Yesterday, the British Treasury launched its dreadnought of a response to the nimble Salmond skiff: a 120-page report entitled Scotland Analysis: Currency and Monetary Policy. Doubtless many north of the border will find unbearably condescending the document’s purportedly dispassionate analysis as to what form of currency would most suit an independent Scotland – even if it is issued in the name of the kilt-wearing Chief Secretary to the Treasury and MP for Inverness, Danny Alexander.

The real poison is in the section devoted to the proposition that Salmond embraces – of membership of a sterling currency zone, regardless of the wishes of Westminster: “An independent Scottish state could continue to use sterling as its currency without the formal agreement of the continuing UK. Thus unilateral adoption of sterling would avoid the transition and transaction costs of a change in currency but at the expense of leaving an independent Scotland with no control over its monetary policy. With no ability to print money, a Scottish monetary authority could at best have only a limited function as a lender of last resort to commercial banks. The option would therefore impose severe constraints on monetary and fiscal policy and financial stability.”

There are examples of small countries which have unilaterally adopted the currency of a more powerful near-neighbour, usually to avoid extreme monetary instability at times of great turbulence: in 1999 Montenegro adopted the Deutsche mark, as an anti-inflationary remedy. Interviewed about the report yesterday, the Chancellor George Osborne instead compared Salmond’s proposal with the adoption of the US dollar by Panama, a nation with no central bank at all (what would it do?).

Osborne’s apparently random choice of role model was venomous, as Scottish listeners with any grasp of their nation’s history would have recognised: it was the disastrous attempt by the 17th-century Scottish government to base a trading colony in Panama – the Darien Scheme – that ended the country’s independence: the alternative to seeking rescue in an unequal merger with the English would have been national bankruptcy. In fact, the Scots did well out of membership of a British empire, and Unionists such as Danny Alexander would argue that the arrangement is still in Scots’ best interests, even if Britannia no longer rules the waves.

Yet Salmond does not base his appeal for independence on pure nationalist sentiment – that was more the old-style SNP, which tended to take the romantic view that it would be better to be poor and independent than in financially secure accommodation with the Sassenachs. On the contrary, Salmond (a former chief economist of RBS) insists that an independent Scotland would be financially more robust than it is as a part of the UK, and that its oil and gas revenues from the North Sea mean that, alone, it would now be enjoying a budget surplus. Most economists believe, by contrast, that on the likely division of assets and liabilities, Scotland would inherit a balance sheet no healthier than that now burdening the UK as a whole.

Yet if Salmond and his party are right on their figures and forecasts, why on earth do they shy away from the idea of an independent Scotland having its own currency? Yet flinch from it they do: it was pathetic to hear John Swinney, the Cabinet Secretary for Finance in the Scottish administration, refuse even to address the question of a Scottish currency when asked about it yesterday on the BBC Today programme.

The British Treasury report states that an independent Scottish currency would entail much higher rates for borrowing, a reflection – it claims – of what would be undue national dependence on volatile oil and gas revenues, and a buccaneering financial sector which dominates Edinburgh more than the City dominates London.

By refusing even to debate the issue of a Scottish currency, the SNP leadership give every impression of believing these allegedly solicitous Unionist concerns to be valid, even if they would deny it to the last breaths in their bodies. Taking this point to its logical conclusion, Scots might draw the lesson that the Nationalists are indeed secretly fearful of the consequences of full independence, and therefore want to nestle under monetary protection from the Bank of England – a protection which Chancellor Osborne says will probably not be forthcoming.

There is, I suppose, another explanation for the SNP’s apparently self-contradictory position: which is that with outright nationalists still a persistent minority within Scotland, they will win a “yes” in next year’s referendum only by securing the votes of those who are not certain of the wisdom of secession. Thus, Salmond offers them continued post-independence allegiance to the Queen as head of state and the Sovereign’s head on coins in Scottish pockets.

Indeed, a recent poll by YouGov found that the policy of retaining sterling was unpopular with supporters of Salmond’s own party. Like Tony Blair scrapping the nationalising Clause 4 from the Labour Party’s Constitution to win over those who were not remotely socialist, Salmond is desperate to attract the support of those who are not out and out Scottish nationalists – there simply are not enough of those to win him the referendum.

Blair was successful in his manoeuvre, partly because he believed in it. In Alex Salmond’s case, mixing national independence with abdication of all monetary powers should be a recipe for electoral humiliation. And even if not (for Salmond is a brilliant rhetorician), it is an intellectual disgrace.

d.lawson@independent.co.uk