On Sep 7, 2014, at 9:26 AM, Robert Naiman <naiman at justforeignpolicy.org> wrote:
> What about dual currency? With the rise of electronic transactions, this would seem to be more practical then ever. When I pay with a credit card in European airports, I am asked whether I want to pay in Euros or dollars, although I have no Euros and my bank in Illinois has no Euros either. Why can't a European country such as Scotland or Greece use Euros for international transactions while introducing a domestic currency for some domestic transactions, like paying taxes, paying a portion of government wages, paying a portion of government-regulated utility bills, paying a portion of government contracts? What if a government is under pressure to cut its Euro wage bill and increase its tax receipts? Wouldn't it be better to pay a portion of the government wage bill in domestic currency than simply cutting government wages? Wouldn't there be a greater incentive to pay taxes if people were holding domestic currency that couldn't be sent out of the country, but could be used to pay taxes? Wouldn’t the fact that the government was using its power to ensure that domestic currency was good for certain transactions act as a backstop of its value?
Robert’s suggestions are interesting, but I don’t know enough about how a dual currency system functions and, like him, would welcome some informed comment from those who do.
Don’t most countries have a de facto dual currency system in the sense that many imported commodities are priced in dollars, requiring large dollar reserves by central banks and large corporations?
Isn’t Cuba the latest country to abandon a dual currency system (the Cuban Peso and Convertible Cuban Peso) on grounds that it is too complex to manage effectively (whether rates set by the market or government decree), inevitably replaces the stronger currency with the weaker one (Gresham’s law) and widens class differences (workers paid in the weaker overvalued currency, but prices set in the stronger undervalued one)? Isn’t a similar process underway in Venezuela?
On the other hand, my understanding is the early Soviet experience with a dual currency, the chernovets, helped stabilize runaway inflation associated with a collapsing ruble, but that was because the former was backed by gold.
> On Sun, Sep 7, 2014 at 7:55 AM, Marv Gandall <marvgand2 at gmail.com> wrote:
> On Sep 6, 2014, at 12:09 PM, Carl G. Estabrook wrote:
>
> > Is the implication that an independent Scotland should take control of of its currency and interest rates?
>
> I don’t think Michael Roberts directly says so, but many if not most Greeks, Italians, Spaniards and others who have seen their former currencies replaced by the euro and have been subsequently savaged by a ruinous economic crisis would loudly answer in the affirmative. If their governments had been beholden to them rather than the big European banks and corporations, the possibility would have long ago presented itself of opting out of the euro, taking control of their central bank and financial systems, restoring their sovereign currencies, and reviving economic growth and living standards through monetary and fiscal policies aimed at restoring export competitiveness and mass purchasing power. Instead, they’ve been subjected to austerity and vicious “internal devaluations” which have worsened the crisis, destroyed jobs and incomes, and plunged tens of millions into misery.
>
> It’s not an easy question to answer in the abstract, however, because the process of replacing an established currency with an untested one can be a very painful and disruptive one for weaker economies with trade and commercial ties to larger neighbours, and who are subject to the vagaries of the international market. In the short term, they face the prospect of capital flight, collapsing banks, bankrupted corporations, and even worsened conditions for the mass of the population whose sustained support would be crucial during the transition period. This is why Syriza, the only left-wing party poised to take power to date, has been divided on opting out of the euro, as have been two leading Greek economists widely read on the left, Costas Lapavitsas and Yanis Varoufakis.
>
> My impression is that there is much less concern about Scotland’s ability to abandon the pound in favour of its own free-floating currency. Even mainstream economists polled by the Financial Times seemed to agree it could weather any short term storms. The article is behind a paywall, but a few short quotes should suffice:
>
> “An independent currency – let’s call it the 'Scottie’ – could work for an independent Scotland and it is the only available option that would allow the country to set its own monetary policy and make its own trade-offs with fiscal policy” (Dame DeAnne Julius, former Monetary Policy Committee member and Bank of England court director). "The option of an independent Scottish currency has been unfairly maligned. A free-floating currency would indeed be at risk of speculative attack but with the right mandate it could have substantial benefits as well” (Sam Bowman, research director at the Adam Smith Institute). "An independent Scotland could issue its own currency, supported by its own central bank. Many successful European countries of a similar scale have chosen this option, for example, Sweden and Denmark” (Tony Yates, Reader in Economics at University of Bristol). “If Scotland had its own currency, this would provide the greatest economic sovereignty, which the Fiscal Commission acknowledges” (Angus Armstrong, director of macroeconomics at the National Institute of Economic and Social Research). “This is the only option that offers an independent Scotland an adjustment mechanism to address unfavourable movements in its competitiveness and provide maximum freedom of monetary and fiscal policy” (Ronald MacDonald, professor, Adam Smith chair of political economy, University of Glasgow).
>
> http://www.ft.com/intl/cms/s/2/e635505a-328f-11e4-a5a2-00144feabdc0.html?ftcamp=published_links%2Frss%2Fhome_uk%2Ffeed%2F%2Fproduct#axzz3C7CaP6rx
>
> > On Sep 6, 2014, at 9:27 AM, Marv Gandall <marvgand2 at gmail.com> wrote:
> >
> >> Below a link to a detailed analysis by the British Marxist economist Michael Roberts of the economic challenges which would face an independent Scotland if it votes to secede from the UK on September 18th. Roberts concludes that "at best, the majority of the Scottish people will find little difference under Holyrood than under Westminster and it could be worse if a global crisis erupts again. Scotland as a small economy, dependent on multinationals for investment, still dominated by British banks and the City of London and without control of its own currency or interest rates, could face a much bigger hit than elsewhere in terms of incomes and unemployment."
> >>
> >> But as Roberts also notes, “the decision on independence is not just a question of the economy and living standards". The political consequences of such a dramatic rupture with the status quo in Scotland could be far reaching - not only on independence struggles in Catalonia and elsewhere, but as encouragement to a wide range of other social movements everywhere.
> >>
> >> http://thenextrecession.wordpress.com/2014/09/04/scotland-yes-or-no/
>
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