Prior to the Brexit vote, an independence movement fizzled in Scotland. In the wake of Brexit, some Scots are reconsidering independence. In considering what went wrong in 2014, some blame failure to sufficiently address currency issues.
In the interest of not making the same mistake again, some Scots want to consider how a national currency would work.
A paper, “Scottish currency options post-Brexit,” by Dr. Craig Dalzell, an M.Sci. and Ph.D. in laser physics and photonics, notes that should Scotland begin another independence campaign, it should do so from the standpoint of using independence to launch a new, independent Scottish currency, which the paper referenced as the £Scot or “Pound-Scot.” The paper was released by Common Weal, a Scottish think tank.
Cryptocurrency was one of the options examined for creating a new currency. Others included creating a national central bank, pegging the £Scot to the British Sterling, pegging it to the Euro, joining the Euro, pegging the £Scot to a group of currencies, pegging it to the price of oil, and pegging it to the gold standard.
The paper argued in favor of tying the currency to the Sterling initially, claiming it made the most sense. This is based on the assumption that voters would prefer some sense of continuity throughout Scotland’s political upheaval of independence.
In considering cryptocurrency as an option for creating a new currency, the paper noted this method is favored by those who wish to either remove the middle person in processing transactions (i.e., the banks) or wish to remove the power and responsibility of creating new money from big, unaccountable corporations.
Concern has been raised, however, about the viability of cryptocurrencies, the paper noted, mostly in regards to a lack of widespread acceptance. The reliance on an unknown verification system could also discourage people from using the currency, undermining confidence and hence the value of the money.
There are also technical challenges to the long-term viability of cryptocurrencies that have not yet been addressed. The time to process transactions depends on the total processing capacity of the miners and can take anywhere from seconds to hours. While this is a lot faster than older systems that can take days to verify, it is much slower than other electronic systems.
Another technical challenge lies in the fact that the total volume of cryptocurrency available to be mined is usually scheduled in advance. If more coins are no longer available to miners, then some other form of compensation must to be provided to induce them to process transactions, such as a transaction fee. This could discourage use.
If and when the technical challenges are solved, the economic challenges with interactions between currencies, like exchange and interest rates, would remain, the paper noted.
No single option is any riskier than any other. Scotland should, therefore, consider the options that allow the government to capture and retain monetary and political sovereignty, the paper noted. This will give Scotland the ability to change its mind and adjust monetary policy, up to and including currency arrangements.
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