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In Praise of Panama

1948Panama's_flagOur friends in the Better Together campaign, the various Unionists and Britnats have a rather unfortunate tendency to denigrate other countries. Alistair Darling is particularly prone to this tendency. The most recent case is the prominence given to Panama as an example not to follow. As Unionists line up to assure us there will be no currency union between an independent Scotland and rUK, the option of Scotland just using the pound has surfaced as a possible alternative. Only to be dismissed in sneering terms by the likes of Alistair Darling. Just look at Panama he screams. Which has no currency of its own, but uses the American dollar. Who would want to be like Panama? It is just some poor, underdeveloped far away country. Or is it?

Well it is pretty far away, straddling the famous isthmus of Panama. But it has become a relatively successful country with much going for it. Panama only became an independent country in 1903, when it declared its independence from Columbia. Much of the pressure for the move to independence came from America, which wanted to build a canal across the isthmus. Which it duly did in 1914 – 100th anniversary coming up in August. Now of course the canal is back under the control and sovereignty of Panama. And the country has used its independence to further develop the canal. By 2015 the expansion of the canal is due to be completed. As both America and China have invested heavily in this project, the result is likely to be a further boost to an already growing economy.

According to the World Bank, Panama’s economic growth over the past decade has been one of the fastest in Latin America with real GDP growth averaging over 8%. This has had a beneficial impact on the well being of Panamanians.  GDP per capita has risen to $10,200, while the poverty rate fell from 48.5% to 27% and extreme poverty declined from 21% to 11%. As regards inequality, this remains relatively high, though it has now declined to 0.52. For comparison the UK stands at 0.40, still a long from the Nordic average of 0.25. So in terms of income, poverty and inequality, Panama is moving in the right direction while good old UK is moving in the wrong direction, with declining living standards and rising poverty and inequality. Unemployment, at 5.7%, is also lower than in the UK, as is the budget deficit, at 2.1% of GDP, while public debt is only 40% of  GDP. If only Alistair Darling could have matched these figures while he was in charge of our finances!

The economic future for Panama looks pretty good too. In addition to the growth that will come from the expansion of the canal, it seems that the country is sitting on top of substantial oil reserves in of all places Darién province. It is estimated that there could 900 million barrels of oil available for extraction, which could raise $20billion in royalties for the country over the next 20 years. So it may be that Scotland and Panama are not that different after all. Both countries are almost the same size in area, Scotland with 78,387 square km is slightly larger than Panama which is 75,599 square km. Scotland also has a slightly larger population with just over 5 million souls to Panama’s just under 4 million. We only need to wait for Alistair Darling to come out with some dire warnings to Panama about the economic disaster that awaits them from all that oil.

Of course the recent interest in Panama is all to do with its currency. Panama does have its own currency, the Balboa, but this is tied 1 to 1 with the dollar and the dollar is recognized as legal tender in the country. To all intents and purposes the dollar is Panama’s currency. There is no currency union, the Panamanians have just always, since independence, used the dollar. Whatever advantages and disadvantages there are to using some other country’s currency, in the case of Panama it does not seem to have held back the country’s economic growth. It is also worth noting that banking is one of the major service sectors in Panama. So perhaps just continuing to use the pound sterling may not be quite such a bad idea as Alistair Darling would like to make out.

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A Currency for Scotland?

184205-scottish-money-currency-banknotes-clydesdale-bank-bank-of-scotland-rbs-royal-bank-of-scotland-quaThe media is once again full of stories of dire consequences for Scotland if we dared to vote for independence in 2016. This latest bout of scaremongering comes from the wise men and women from the UK Treasury, headed up by our Chancellor, George Osborne. It is worth bearing in mind just who it is that is making these scary claims. The UK Treasury is not some neutral, academic institution, only interested, in a disinterested way, in the truth and nothing but the truth. The Treasury and its leaders, George Osborne and Danny Alexander, are part and parcel of the UK government and as such wholly committed to keeping Scotland in the UK. They are as likely to produce a balanced report on Scottish independence as the Catholic Church is to produce a balanced report on same sex marriage. Secondly, the Treasury has a track record of getting things wrong, spectacularly wrong. Remember this was the body, under the leadership of Gordon Brown, which presided over the UK’s slide into financial meltdown. The same body which is now presiding over the apparently endless stagnation of the UK economy. Whatever the UK Treasury has to say on anything has to be taken with several buckets of salt.

Even taken with several buckets of salt, the Treasury’s latest contribution to the independence debate is at best silly and at worst deliberate scaremongering. When it comes to what currency an independent Scotland should use, I find it useful to think in terms of two timeframes and three options. The two timeframes are our old friends the short/medium term and the long term. The first takes us from independence in 2016 through to 2020 or 2024. This is the period covered by the first and second terms of parliament after independence. During this period, what I tend to regard as the transitional period, Scotland will continue to use sterling as its currency. There are no ifs or buts about this. Continuing to use sterling as our currency is not something that George Osborne or anyone else in the UK Treasury can stop us doing. This is the first option for an independent Scotland. Just continue to use sterling without any formal link/arrangement with the rest of the UK. Perfectly feasible, has happened with other newly independent countries in the past. The key point is that nobody can stop us doing this. The second option for this transitional period is for Scotland to formally join with the rest of the UK and set up a currency union. This is what the SNP are proposing. There is much merit in this proposal, both for Scotland and for the rest of the UK. It would give Scotland some input into the decisions of the Bank of England, something which we do not have at the moment. But if the rest of the UK wants to be as nasty as the Treasury is suggesting, then a currency union may not happen. In which case Scotland just uses sterling and we are no worse off than at present.

The two options outlined above are for the transitional period, roughly 2016 – 2024. During this period all of us in Scotland, including the various political parties, will closely scrutinise and monitor how effective continuing to use sterling as our currency is. This is where the third option enters into the scene. This is for Scotland to issue its own currency. Many people argue that we should go for this option straight off. However I have discounted this on the pragmatic grounds that the SNP have consistently rejected this option and are strongly committed to staying with sterling. And as the SNP will have the final say during the negotiations in the lead up to independence, this is what will happen. However after independence those in favour of establishing our own currency will have plenty of time and opportunity to make their case and convince the electorate to vote for them in parliamentary elections. By then of course we may have decided that on balance continuing to use sterling is the better option. The point is that it will be our decision. For a more detailed rebuttal of the Treasury report see this article in Wings Over Scotland.

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