Francs For The Memory, Sir Walter

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As someone who can't quite remember the 1950's, I grew up in a society which had fairly set views on the world. You played outdoors for hours every day, you did as you were told when you were told, you hoped to grow up to have a good job, and the world only really existed between about  Moffat and Perth. And the concept of independence for Scotland was not a topic for polite conversation, never mentioned in civilised company.  

 

Then I stopped playing outdoors every day, I did grow up a bit, I became self-employed, I stopped doing what I was told and for a while moved to a country even smaller than the space between Moffat and Perth, but much richer than the whole of Scotland. And while I lived in that small country I learned lots of things that just can't be learned on an island and the experience hugely changed my outlook on the world.
 

luxembourg franc

 

 

Another huge change is that the topic of Scottish independence is now regularly a lead topic on UK news outlets, although not always treated with the respect it deserves. Today's independence furore concerns the opinion of the Governonr of the Bank of England that an independent Scotland may have to cede some sovereignty if she wished to retain Sterling as her currency. Or maybe he didn't quite say that, this speech seems to be more than usually prone to interpretation by news sources. But let's assume he did. Is he right? Maybe not. Remember that Mr Carney is from Canada, a very large country, and that he may not have the range of imagination and adaptability that belongs to people from small countries.

In case you haven't already guessed, the small country in question here is Luxembourg, the smallest by far in the EU, being only about the size of Kirkcudbrightshire (but much easier to spell) and hosting a population slightly smaller than Glasgow's, half of them immigrants. It is also by some margin the richest per capita in the EU. And it is self-governing, independent-minded and regularly annoys its neighbours by doing what it thinks best for itself.

But I digress slightly. The point of this homily is to explain how Scotland can learn from little Luxembourg how best to manage its own currency while not leaving the currency union with its larger neigbour. Look at the notes in the picture above, the last ones that carried the genial image of Grand-Duke Jean. You will notice that they are issued by the Luxembourgoise Monetary Institute: they were the official bank notes of Luxembourg and were legal tender for any purpose in the country. Before 2001 everything was priced in Luxembourg francs, or flux as we called them. But a strange thing about living in Luxembourg in those halcyon pre-euro days was that most of the notes in your wallet probably weren't flux, but befs, like the one shown below.

 

        belgian-franc-100-note

In case you hadn't worked it out, BEFs were Belgian Francs. That's obviously a 100 BEF note above. Below is a 100 FLux note.

 

lux-franc-100-note

 

Quite similar, aren't they? Same size and shape, same colour. And the value? It was always easy to calculate the exchange rate because it was 1:1. Each was worth exactly the same as the other, and always was because the FLux was pegged to the BEF. Luxembourg maintained its independence, printed its own currency, set its own taxes, managed its own affairs. In fact it was even a little bit cheeky because most of the money in circulation in the grand duchy was in fact Belgian - the Luxembourgers were happy to let Belgium pay for most of its currency. Nobody cared whether the notes were Lux or Belgian, they were completely interchangeable and wallets usually had a mix of both. There was never any problem spending them.

At least, not in Luxembourg. As soon as you crossed the border into Belgium things were a bit different. Belgian traders were often reluctant to accept Lux notes in transactions and a quick visit to a cash machine could be in order. So, two countries with their own notes with nominally equivalent values, one of which accepts any kind of paper, the other often refusing the non-native kind. Now, where have we come across that before?

This could easily be the situation in the new Scotland. We already have Scottish bank notes which mimic the size and colour of Bank of England notes and are worth exactly the same, but are sometimes refused south of the border. At independence all we need do is to declare the re-establishment of the pound Scots, pegged at 1:1 with the pound Sterling. The notes are already in circulation and we can let the Bank of England continue to help out by printing more UK notes. Nobody in Scotland would notice an iota of difference.

Once the country is properly established, in a year or two, the peg can be gradually loosened until the pound Scots becomes a fully convertible currency in its own right. The odds are that it will be a fully floating currency well before the Chinese Renmimbi finally manages it.

It would be difficult to imagine an easier transition. And to whom do we owe this convenience? Didn't you read the title of this piece?

 

bos walter scott

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