Whether Having Its Own Currency Will Be in Scotland's Best Interest - Case Study Example

Scotland’s Own Currency will serve its Best Interest College: Introduction The decision by Scotland’s independent would have worked positively towards in economic growth. The overdependence on shared pound has been criticized as expansive amongst the United Kingdom. Scotland has vast resources that could have supported its currency growth rates. These resources range from its oil deposits to gas. Dissenting argument in UK have been presented based on the need to have an independent Scotland (Great Britain, 2013, p. 65). UK believes that the current framework serves the best interest of Scotland people. Despite that the September 1st Elections were thwarted, Scotland lost the best opportunity to grab. The argument by other people that Scotland is a small economy and hence properly manage its currency is misplaced. Many small countries such as New Zealand have jealously guarded their currencies and have become more successful. Scotland’s currency would be a prerequisite in her efforts to regain from the mismanagement of the economy since the end of World War II. Despite the dissenting argument attaching the independence Scotland currency management to attract a lot of nervousness in the short run, this will still favor Scotland as such experience will culminate into a workable framework for the government. In addition, Scotland is known for financial probity and is endowed with massive natural resources as well internationally known for a higher degree of trading capability. Own currency will be the best alternative allowing the country to regulate and control its economy. Many other small countries such as Norway and Switzerland are typical examples of countries that have showcased that small countries can properly manage their affairs based on independent currencies with German and Dutch regretting for having giving away their currencies to join euro. These grounds thus down-play the notion of incapability of Scotland to manage its own currency being attached to being small and hence costly, hard to manage, as well as viewed as a petro-currency floating sea oil (Hoffer 2006, p. 53). Besides, some have attached strings such as unpredictability of the currency value resulting from the oil price fluctuations. With these in mind, analysis against pros and cons, still reveal own currency as the most feasible options as stated by the Fiscal Commission report, ‘By international standards, Scotland is a wealthy and productive country. Even excluding North Sea Oil output, GVA per head of population in Scotland is estimated to be 99% of the UK average and highest in the UK outside London and the South East.’ These strong statement by a reputable report further confirms the Scottish ability to manage its currency and serve the best interest of its masses. Body The adoption of Scottish own currency will serve the best interest of the nation as it presents promising avenues to break away from the chain of Westminster’s policies. According to social democrats like Salmond, vague fiscal alignment with Whitehall only attracts little attention. The proposed alterations by the First Minister in Scotland’s taxation and expenditure policies are feasible strategies but are not radical. The conventional policies guides such re-alignments of policies and hence Westminster will have no objections to creating mutual relationships with countries that have same objectives with respect to currency. Presenting radical and sound policies aimed at altering the monetary and financial framework of the Scottish economy calls for breaking away from Westminster’s’ punitive policies. In addition, Scottish own currency is significant and serve the economy’s best interest since pound is expensive. The expensiveness of pound is a destructive mechanism against Scottish exports with particular respect to Scottish manufacturing industry. Those proponents of the currency union have only one underlying reason that Scottish stands to lose its foreign earnings if it diverts from UK framework since most of its export are within the UK markets. In essence, this should be a major reason Scotland should ditch the Union as their exports only attract fewer consumers best on the expensive pound. Their products thus face daunting challenges as only few can manage to buy an expensive good while there are cheaper substitutes. It is for this reason that over 70 percent of the Scottish goods are exported to the rest of the UK. Hence, the currency union only benefits UK and not the Scottish. This strongly supports the need to ditch the UK currency union so that Scotland can regulate their interest rates and prices for their exports and hence will boost their BOP. The expensiveness of the pound in the British has presented a daunting challenge to Scottish economy. With respect to London City and its environs, John Mills explains the reason behind pound expensiveness (McLean 2013, p. 90). The bureaucratic procedures for instance, trading in British calls for first buying the pounds and since many people would want to trade in British, the value of the pound shoots and hence manufacturing industries get Scotland clobbered as less goods are purchased. This can be curtailed by import substitutions as the having own currency will help the Scottish government to protect domestic manufacturing industries from foreign goods. Appreciation of UK pound hurts the Scotland manufacturing industries due to reduced demand for its goods as shown in the diagram, The government having benefited from own currency will be able to control its fiscal policies and hence imposes quota that then help boost its manufacturing industries. The wrong policy choice made on the pound has also led to appreciations of pound. The pound has been noted by Mills to have shot by 64 percent between 1977 and 1982. The continuous operation of Scotland under the shared expensive UK pound only serves the best of the UK government (Hallwood & MacDonald 2009, p. 69). The current oil subsidy offered to the UK government is indeed not in the interest of the Scottish. The UK controls the Scotland economy as much of Scotland oil is used in paying the massive debts borrowed from UK. Having its currency and reserves will enable the nation to manage its financial markets and thus control of the borrowing. In addition, having Scottish’s currency would be a stop to the wasteful subsidies offered to the UK government. The cuts in the oil subsidy imply increased accumulation and stock of its oil. This will see the country wealthier than ever. Despite the fact that the expensiveness of the UK currency results from the Scottish, economist argue that is better a county have an expensive currency because it is richer than UK unfairly benefiting from appreciated currency but in essence lacks resources attributable to such expensiveness in its pound. According to the FT, it was noted that the Scottish use of the expensive pound can easily be relinquished as future crises can be counteracted through employment of exchange rate and monetary policies. This statement by FT sums it up that it would be great significant for Scottish to design and control their own currency which extends to crises mitigation proactively (Great Britain., & Stationery Office (Great Britain) 2014, p. 64). So it is in the interest of the Scottish government to adopt its currency so as to make their manufacturing industries increase their productivity as they will be able to set and control their prices. The following diagram illustrates how the determination of the exchange rate in a flexible exchange rate system; The Scottish economy also stands to benefit greatly from the import substitution mechanism. Having own currency would imply that low prices will be charged locally but still profit will be realized. Scots will thus find it cheaper to buy Scottish’s products and still feel satisfied as quality products will be domestically produced. This will result to increased demand both from the rest of the United Kingdom as well as worldwide markets for the Scottish commodities which compensates appropriately. Increased purchasing power by the Scots for the domestically produced products will imply balancing of trade and hence diminishing carbon emissions resulting from reduced shipment of imports into the country. The decision to trade internationally will be based on the comparative advantages as shown; The diagram indicates how Scotland stands a chance to benefit as it will be able to produce its oil in the country and export to the others. This will be advantageous since within the current position of using expensive pound, nobody will buy their products but if they can set and charge their own prices based on their currency they will have a welfare benefit represented by red triangle BCE resulting from importing only want they have less comparative advantage to produce (Great Britain., & Great Britain 2013, 87). The reasons for strength of the UK’s Pound results not from Economist point of view but political players. This means that continuous utilization of a common pound amongst the UK nations will not be the best interest of the Scottish. This political power has been discriminatively used to favor London that economically is not stronger than Scotland. It would be advantageous for Scotland to have its currency as this will lead to increased flexibility. This results to increased autonomy over economic policy. This is in effect in line with the concept of economic independence. In this case, the Sottish economy will benefit in that it will develop a floating exchange rate, and this will help stabilize its foreign exchange market (Bretton 1980, p. 121). More investors will be attracted to do domestic production that will match the increased domestic demand and hence increased revenue collection that has a positive multiplier effect to the GDP. Conclusion In conclusion, designing and managing Scottish own currency has better pros as compared to cons. Setting own Scottish will make Scotland trading internationally to increase. This is beneficial as they shall have been freed from the bondage of expensive UK pounds. This implies that new markets, as well as existing ones on a global perspective, will be captured (Great Britain 2013, p. 78). This will culminate into increased market share and power and hence significant to BOP management. The manufacturing firms in Scotland stands to grow at a faster rate and thus more revenues collection. Scotland will on the hand benefit during financial crises as it will have its reserve base necessary to control its financial and exchange markets. The management of both monetary and fiscal policies will be internally executed, and hence appreciations and depreciation of countries will be controlled. The adoption of own currency to Scottish will radically alter its systems and have avail vast avenues to manage crises. This program will lead to better exports outside the UK markets and the rest of United Kingdom. The daunting challenged faced by Scottish on low sales of its products based on the appreciations of UK union Pound will be curtailed by setting own policies aimed at making its transactions affordability and hence increased sales volume. The continuous stay of Scottish to use the Union Currency would mean that Scotland will continue to suffer from the UK’s Dutch disease (Arestis & Sawyer 2001, p. 122). The Scottish will also further suffer from the hegemonic neoliberalism and hence will remain a subject of the City of London. This challenge in essence should never be the case as Scotland will suffer and the expense of UK despite being the richest nation amongst the rest of United Kingdom Reference Arestis, P., & Sawyer, M. C. (2001). Money, finance and capitalist development. Cheltenham, U.K: Edward Elgar. Bretton, H. L. (1980). The power of money: A political-economic analysis with special emphasis on the American political system. Albany: State University of New York Press. 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Scotlands Choices: The Referendum and What Happens Afterwards. Oxford University Press. Read More