The value of the pound has dropped recently against other currencies – most importantly the US dollar and the Euro. The reason for this drop was the news of growing support for independence. An 8% swing to yes.
Cold logic of the markets
So the money markets consider that losing Scotland from the UK will weaken its financial strength. The markets have a cold logic, and have called the bluff of the No campaign to refuse to share the Pound with Scotland. Removing Scotland from the currency removes a significant part of the UK’s income and weakens its financial strength.
Currency agreement an economic necessity
This makes a currency agreement with Scotland an economic necessity for the rest of the UK. To continue to refuse a union after a Yes victory would be likely to further weaken the currency, and their hand would be forced, along with being in a far weaker negotiating position with any Scottish Government negotiating team.
Refusing to share the currency was a political decision designed to cause fear and uncertainty among the population of Scotland. It was specifically prefaced by the formal assurance to the money markets that the rump UK would assume responsibility for all of UK debt. The threat didn’t have its desired effect on voting intentions. Indeed, the threat has probably caused a move to Yes, because Scots don’t like being bullied. And now, that decision is causing the value of the currency to fall.
Will it be Financial or Political suicide?
The No campaign won’t change their minds before the referendum. That would be political suicide. But they will do so afterwards. Refusal to do so would be financial suicide. But if there is no currency union, the remainder of the UK will be saddled with a weaker currency, and potentially, all of Scotland’s share of the £1.4 trillion UK debt. Agree to that union, and you both strengthen your currency, and relieve yourself of a significant percentage of that debt.
Even those who struggled with maths at school, can work out what is the sensible choice. Shoot yourself in the head, and let your economy suffer even more than it needs to with the loss of Scotland’s economy, or swallow your pride, admit your bluff has been called, and start talking with the economic powerhouse that has underpinned your broken economy for many years.
If Scotland votes Yes, Scotland will use the pound. The value of that pound will depend on the decisions of the bluffers who currently run the UK’s economy. Unless these people are both mulishly stubborn, and politically suicidal, they’ll do a deal, because it’s in their interests, and that of everyone living on these islands to do so.
The prize is a better country for the people of Scotland. And that’s only 13 days away.