What would a Scottish Central / Reserve Bank look like?

[Music] um yes i've been asked to come on to talk about um just what a central bank is what it does and what it would take scotland to set one up and so what does the central bank do we're used to the the big thing that central banks do that is monitoring the money supply of a country and setting things like interest rates inflation targets and perhaps even balance of payment uh targets that this this was a policy that used to be quite popular in the uk monitoring how many how much what is the value of the goods being exported from the country versus what's being imported and trying to to work out if that balance is the the the right thing in an era of globalization we don't really track that much anymore maybe we should that's something for uh policy people to discuss um but there's other things that central bank does a big one is known as financial clearing this is where the central bank sits as a trusted neutral intermediary between the retail banks as they are trading money between each other and other financial institutions are trading money with each other and that can be anything from you're balancing the the the reserves held by these retail banks if one of them needs needs help from the others but it goes all the way down to even when you as for example a bank of scotland customer goes to barclays bank to take money out of their atm that transfer money from your account has to go through two banks and often they do this through some sort of cleaning institute central banks can often um have a role in maintaining and enforcing financial regulations some central banks around the world do this some countries the uk notably and outsource this to a separate financial regulation institute but you can think of these things these two things as as linked and we do think about central banks and folk who are around in the 2014 campaign and we'll we'll know the the term lender of last resort this is something else that central banks can do ultimately as the pers as the institute that defines the money supply in a country they are the ones who can bail out any institution if no one else can but if you have a regulatory industry that that is tight enough to prevent these these institutions getting into trouble in the first place then the need for that lender last resort while it's important to have ideally you should never get into that trouble in the first place a good example of this i highlight in the paper is um during the 2008 financial crisis when banks were collapsing all over the world one country that notably didn't suffer a financial crisis as part of the the the crash itself was jamaica they had learned from a previous financial crash in the 1990s that affected their housing in the housing sector and they tightened up their financial regulations and as a result in 2008 their banks weathered that storm pretty well of course they then got into trouble later on because jamaica is a country that is quite heavily dependent on tourists on the tourist tourism sector and due to the 2008 financial crisis nobody could afford to go to jamaica on holiday so they suffered in a different way but the financial regulations worked and they didn't need to bail out their banks to the same degree that the uk did um so what would it cost scotland to set up a central bank should we choose to do one now i look in this look at this in the paper as well it turns out that central banks really scale as a factor of the size of your country there's a really good strong correlation between the size and the the expense of your central bank and the size of your economy and that kind of makes sense as there's people sitting at the top of that economy monitoring and regulating and and maintaining it and so a country the size of scotland you'd be looking at somewhere between 150 million 200 million pounds to set up probably roughly the same again to to maintain it every year but here's the thing because of all those things that central banks do they're profit-making enterprises the the bank of england makes a profit for the uk and that profit because the bank of england is a nationally owned institute goes straight into the uk treasury how many people would employ depends how much you want to do with your central bank whether you want a light touch central bank or a investor central bank but it'd be somewhere between 300 and 1000 very well paid very skilled jobs there's a lot of opportunities there there's plenty more to discuss about what we want to do with the central bank how we want to run it how much democracy we want in it so what i'm just going to do is just briefly outline the design principles that we're suggesting for the scottish reserve bank and the scottish reserve bank is what i think we should call the central bank for scotland it's uh picks up on things like the reserve bank of new zealand federal reserve of the united states uh reserve bank of south africa we obviously can't have reserve bank of scotland somebody else has rbs so anyway so scottish reserve bank and i suggest that to be based in edinburgh because that's where a lot of the financial community is and it would be owned 100 by the scottish treasury it doesn't need any share capital or no external investors it's the source of capital so we don't need to put money in to start it up other than the initial cost of premises and things like that it would have presidents and directors which would be appointed by the scottish parliament and they should always be answerable to the scottish parliament you know it's a it's a right-wing sort of myth that uh central banks should be independent they shouldn't that was the reason why the bank of england was nationalized in 1946 was precisely to make it accountable to the people and parliament parliament will uh direct the central bank to make the preparations for and introduce the scottish currency and uh it will put it in charge of things like the monetary and policy that should be pursued in scotland it will run the bank accounts for the ministry of finance and it will provide loan and overdrive facilities as required to the state uh so for example at the moment under the kovid facility the bank of england has lent the british government 300 billion pounds and rising so that as a result the cost of the covet pandemic has been in terms of what the public have to pay has so far been exactly zero as you know richard murphy can elaborate on that at length uh the bank will also hold and manage the foreign reserves of scotland on behalf of the ministry of finance and it will issue banking licenses to people to companies which wish to provide banking services in scotland so any of the existing banks for example uh let's say nationwide building society if they wish to continue operating in scotland they have to set up nationwide scotland plc and apply for a banking license from the scottish reserve bank the bank will also be holding the reserve accounts of the commercial banks that will provide the interbank payment system that is necessary for them um we can there's no reason why we shouldn't allow banks operating in scotland to carry on issuing their own banknote designs if they wish to i think it's a nice tradition i don't see any problem with that uh they do have to deposit 100 bond against any notes that are issued so at the moment there's four and a half billion on deposit in the bank of england and that will move uh to scotland uh when we become independent so it goes into the reserves of the central bank we will also be directing the central bank to establish a sovereign wealth fund for scotland and uh as you'll see if you attend one of my talks the scottish reserve bank will end up with very large sterling reserves because it is going to buy our sterling uh so when we hand in 500 pound and gets 500 pounds scots that 500 pound we hand in becomes the property of the central bank so it could end up with 40 or 50 billion within a few weeks of the new currency coming into place it doesn't need that so we can put quite a large amount of that into a sovereign wealth fund can i just make a general comment though which is actually quite important at this moment and that is that we're discussing something which does presume that scotland is going to have its own currency a reserve bank can't really operate in another currency i know that there are things called central banks across europe which do you the euro they don't have the range of powers that i think is necessary to deliver the control of an economy that scotland is going to need particularly as a new country and the power it most particularly needs is the ability to control its interest rate um it is said that scotland is going to have all sorts of financial problems if it becomes independent which i suspect those who are watching this will realize that i don't agree with but i do think that scotland has to have the means to actually enforce in a sense its will upon the scottish economy and that is what governments around the world do i mean as far as i'm concerned governments exist to run economies fundamentally to deliver well-being for the people of the countries for whom they're responsible and having your own currency is a pretty fundamental part of that with regard to the central reserve bank that is going to be required without having your own currency you can't control the interest rate which is a fundamental job of a reserve bank without having your own currency you can't run those reserve bank accounts on behalf of banks because they'd have to be held with the bank of england if they're going to be held with anybody and so you wouldn't have the means to actually regulate scottish banking and without your own currency you can't do quantitative easing which is the long-term mechanism now used to control interest rates within an economy and there is a real value to low interest rates as we've all seen and does anybody with a mortgage will know in fact i believe that unless scotland has the ability to control scottish interest rates after the independence has risen then having a central reserve bank is no point but also scotland is left completely exposed to risk with regard to interest rate policy set for another country so the fundamental rule to make a central reserve bank operate is have your own currency and then set rules for how you want interest rates to work and be willing to back those up by creating your own central reserve bank accounts for your own countries and to have your own ability to do qe those are the fundamental rules that i think have to be complied with you know when when we have an independent scotland we have to have our own currency we are not really fundamentally independent unless we have our own currency so um you know the the myths of unemployment the met of austerity and we're aiming to bust them all at modern money scotland so that's really the function of what we're trying to do there and so obviously having a central bank and having our own currency that's really central to that thinking does the scottish reserve bank want to target inflation or should we move towards targeting unemployment and inflation well i think one of the key objectives of the central bank should be to maintain full employment um in the uk at the moment the bank of england's only really worried about inflation and inflation is some there's a concern mostly of people who have lots of money and people who are owed money you know if you if you lend money then inflation means you get back less than you lent so you know the fact that uk is only interested in inflation suggests that they're only really interested in protecting the wealth of the you know the very very wealthy and their financial institutions uh in the u.s it's not very radical i know the u.s federal reserve it has a target of maintaining full employment in america and i think scotland should you know that should be our number one objective and the rest should be a bit secondary very briefly i mean one of the problems of having a central bank with objectives is that actually that splits economic responsibility between a treasury or you know finance ministry or whatever we might have in scotland in the future and a central bank that's a problem because turf wars break out traditionally we've had governments as in treasuries running tax policy what's called fiscal policy and economic terms so let's call it tax and spending policy and then we have central banks running interest rate policy and the two don't necessarily coincide we don't really have many effective mechanisms for what is called monetary policy now because those run around interest rates and interest rates are going to be near enough zero for the first 10 15 years of an independent scotland i suspect so let's ignore that we have to integrate the central bank into the thinking of the treasury they cannot be considered separate that's the critical thing to think about here and if the central if the government wants full employment and that should be its aim then it should go for it and full employment is entirely possible with low inte low inflation so long as you get your pay policy right as well so those are the combined things for me and pay policy means decent wages for decent jobs yeah and i would also reiterate what richard said earlier uh in that what is your government for you know it's really for running your country and and i would say you know that the lassie fair and governance that we've had for the past 40 years is not suitable for purpose you know you elect people in to run your country well and when you have unemployment there are massive toxic effects for your society after that and you if your politicians are not ensuring that there's no unemployment you know get them out vote them out you need to have politicians that are ensuring that we have full employment in a country that has a free floating fiat currency there is no excuse for unemployment and there is no excuse for all the toxic effects that it brings to our society how do we introduce the currency issue into the discussion without making it look like an attack on the snp well i mean this is something i've been working on since i proposed amendment d at the april 2019 conference now i thought that had set the policy very clearly i think the delegates were very emphatic uh that they wanted us to have our own currency as soon as possible after independence day and then suddenly the next day we have you know spokespeople for the snp popping up on the bbc saying it made no difference and we're just going to go on with us you know using sterling for 10 15 years so you know all it really needs is for the leadership to to actually take notice of the what is actually the policy uh and just accept that that's a policy and i don't know i don't really understand what the issue is i haven't you know i've been doing meetings all over scotland for the last uh nearly two years and uh i haven't met anyone uh apart from uh one or two mps who you know don't agree that that is the sensible policy so you know we're not trying to attack the snp or anything at all because i think you'll find that there's you know 100 000 members who all support the view that we should have our own currency so you know i don't really know what the blockage is in that um if if we if we just accept that and then next time nicholas sturgeon is facing andrew neal on a tv interview she won't get tied in knots because the policy doesn't make sense you know she'll just be able to say you know when someone says what's your policy we're going to have our own currency like every other country and the end of discussion that's so you know tie yourself in knots over some mythical tests and uh things like that it's just silly i'm not a party politician i'm not a member of the snp i'm not a member of any political party so i make the point that my concern is that i can't imagine a successful viable scotland without its own currency and i can imagine a successful viable scotland with its own currency and i believe it's a place where you know frankly i might want to live so the difference is absolutely fundamental it is literally about being independent you can't be independent if you don't stake your claim as a country to tax in your own right and have your own currency and tax and money are the flip side of each other spending puts money into the economy and tax brings it back that's what actually happens in reality that's how money is created by government spending and it's claimed back to prevent inflation by taxation so these things are just not independent in a country and yeah if scotland wants to really run its own economy and god knows scotland's capable of doing that let's not believe any of the stories to the country if scotland wants to do that it has to have its own currency it's just like going out to become a carpenter and not having a saw you know it's just basically because that yeah your currency is your tool that in that policy you know that's very you know if we you if we have to ask for the tool from another country that that's we're but we're in the situation we're in now so yeah but how your question is how are you not attacking the sm people the snp is a democracy it's a big party and it's it's a broad party we all know that there are people on the right in the left and everything in between so you know if some people think that andrew wilson's idea or the growth commission's a good idea then yeah crack on with that but i don't and lots of other people in the party don't and we we've just got to keep arguing our case which i think is the logical one so yeah we just got to keep convincing more more people so i'm busy with trying to do work on modern money scotland and and then going around talking to people as much as possible to try and simplify this as much as possible because i think unfortunately people are afraid of economics and they don't need to be let's it's not it's not it's not scary it's really not and there's again there's been this smoke and mirrors to try and make it uh scary and it's not so i hope that i can demystify that a little bit how do we persuade the snp to drop andrew wilson's waffle ideas and miss a currency soonest um richard i wish i knew i mean i i just don't understand where andrew wilson is coming from i'm really completely baffled by why somebody would actually want to promote the idea that scotland is going to become independent and then try to build up reserves by trading in sterling over a long period of time when as tim points out reserves are readily available by simply swapping from sterling into scottish currency whatever it's called but it's composing choosing to impose austerity on scotland i mean there is no other way to do this if you are literally understanding economics and i think i do you want to create reserves the way that andrew wilson does then the only way to do it is to run a government surplus and to run a government surplus you have to push everyone else into deficit that means every single household would have to borrow to create a surplus within the government for a start now that's so basically wrong to force every household to borrow to let the government have a surplus that it's just almost criminal to think that that's the right way to go and it would literally crushed the spirit of scotland and damn what's running the whole independence campaign is the spirit of scotland as far as i can see and i watch you know from a little bit from afar but read and i'm in touch with lots of people so look i just don't understand andrew wilson's approach i don't understand why it's attractive the only thing you can and must do is appeal to a small number of businesses at present and it might appeal to a small part of the electorate at present but the time when that was of worry when we had to worry about a margin in scotland about you know those small numbers of people to tip it over the 50 i genuinely believe that's gone so how do you defeat andrew wilson you push the margin in favor of independence not up from 52 to 54 but actually to 58 to 60 and at that point you haven't got to worry about those who are obsessed about this issue about the currency anymore because it's so glaringly obvious that scotland wants to be its own country in its own right anyway and we cannot have to win it on the basis of some people who are petrified that their pension might be paid in scottish bounds instead of sterling that's the way to win this win the big argument and this small one will follow on it's a smaller one relatively after all well after the april 2019 conference it was andrew wilson who was on the bbc the next morning then i thought the only way to win this is exactly what craig was saying and that's just you know forget about the leadership for the time being and uh concentrate on the grassroots the yes the yes movement all the snp branches and so forth and that's why i've i've spent you know the nearly two years uh holding nearly 35 meetings now and just explaining that currency is easy you know every country has managed to do it you'll have seen the poll there that same asking whether the growth commission is a good idea and 88 have said no so i think that answers the question yeah i mean it's just not logical and i think you know just for me the reason i started to learn about economics was to convince new voters and because they're quite analytical a lot of them they really want to know how it's going to work how will it actually work and the growth commission doesn't offer anything in that respect so i think i think it was a political decision i think it comes across as maybe this is simpler to sell people feel comfortable using this currency and it's simpler to sell to the no voters i would disagree with that i think the new voters are discerning and i think they want to know the truth and that you you we cannot sell them this pop it is a pop what i think would happen with the uk state pension for example so as these things stand as the continuing state the uk would be liable to pay the state pension to everyone the same way as they pay it to people in spain or you know even a polish plumber who comes to work in the uk for 10 years and goes back to poland they're still entitled to 10 years worth of a uk state pension but it's not a funded scheme so there is no pension fund behind it so uh and it comes out of current taxation so i think what would happen in the negotiations over independence is that there'll be a a small payment of a couple of billion out of the uk state pension fund which usually has a few billion in it uh and scotland would agree to take over the state pension and would then pay it in scottish pounds uh going forward and you know it it's funded then from the national insurance and the income tax that we're paying uh anyway so i think that's probably what will happen to the state pension uh anyone who has a private pension or from a company based in england that will be paid in sterling we we do often see that statistic that scotland has the uk has the lowest state pension in western europe and that's true we've got some of the lowest percentage replace income replacement rates um among the state pension and that is largely because we have transferred the responsibility of looking at of of having a retirement income to the private sector you know our private pensions are make up a much larger percentage of retirement income than than many other countries across europe and that leads to problems with one you know every time you you're paying into your pension or you're transferring your pension around looking for a better deal you're paying fees and that money is leaving and going into the financial sector's profits but there's also instability uh whether it's through a company pension you know disappearing when the company uh goes bankrupt we're seeing headlines about that today um as we have just about every week or you know just again the the financial sector finding ways of taking your money and or when the markets collapse you see your savings disappear again and if that happens shortly before you retire you have no way of building that that back up again before you before you need it so i think we do we should maybe try and shift that balance away back to a strong state pension and a more marginal private sector yeah well that's another example of you know why you want your your money your currency as a tool because you can make that decision you're you elect your government and you say we want better pensions and the government has to create that pension from the currency that it can create and that's you know the the the big thing that people come back to me when i'm talking to this talking about this is so what are the constraints what's the constraints on issuing currency well the constraint is is um inflation so but we have we have this really low pension here in in scotland in the uk and um you know you have elderly people dying and cold in their houses and in scotland you know that's particularly a pernicious scene is how we have so such a glut of energy in scotland so um yeah we can choose to to pay a better pension a spec per state pension once we're independent and we have our own currency the issue here is that in the uk as a whole we spend well over 100 billion a year on state pensions but we actually spend 55 billion pounds a year subsidizing the pension contributions of people who are still in work the vast majority of that goes to those who are already wealthy of course with my life you've got to be wealthy to actually be in an official but the vast majority of that goes to those who are already well off who subsidized the savings of the wealthy really heavily inside the uk tax system at present which very few people realize what we have to do is stop that stupid subsidy to those who are already well off and make a commitment to make sure that everybody has security in old age so the first thing to do is change the tax system the second thing you need to do is change the rules with regard to how pension funds work to make sure that in fact they don't speculate um for all the long term which is what they do now they buy shares which are effectively ponzi schemes buy to sell schools which literally cannot pay a return in the environment we now live in where sustainability is critical and they stop speculating in land as well and instead create long-term new because pensions are actually an intergenerational contract it is that we will create something of value for the next generation to use so that they can give up some of their income when we're old so that they can afford to look after us that is what a pension contract really is in macroeconomic terms so we have to actually make sure that pension savings go into creating real long-term value in scotland that's why i believe they should be linked to the existence of a scottish national investment bank this way you actually provide real long-term economic security for the people of scotland by generating wealth in scotland for the younger people of scotland to enjoy so that they can look after the older people scotland in the future now this is a fundamental rethinking of that intergenerational contract to provide people with the security they need in the short term we're dependent upon the exchange rate with regard to existing contracts i accept that in the longer term scotland can commit to paying a much higher pension if only it thinks that it has to be better to pay for that future for everyone who lives there and boy will people in scotland be better off if that policy is adopted than they are in england right now where frankly pensions are being well um to use a phrase that boris johnson might recognize staff against the wall of the city of london um what should the pension age be in scotland in an independent scotland um right i'm going to be a bit controversial how about we stop thinking about a retirement age and instead think about a universal basic income that allows people to retire when they want to and when they need to sort of deal the scottish government will take over the state pension and ada will freeze it so you know people in scotland on you know the first day of independence with a a uk state pension the liability transfer to the scottish government um anyone who moves to scotland after that and they would they would have their past uh rest of uk pension they would start paying into a new scottish pension um so you know that and likewise you know if you're if you moved from scotland to the rest of the uk after independence you'd you'd keep your scottish state pension and you'd have to start building up a new english uh pension uh from your employment there uh it's a uh you know it's a i think it's all perfectly soluble uh the isle of man has a sort of arrangement where you have an island man pension if you move to england you can sort of transfer it but they are separate the max pension payment incidentally is considerably higher than the uk state pension what do the panelists think of the current slate of subject matter experts that the scottish government rely on and the lack of formal voting of those advisors um so yeah i i guess probably the first one that i can think of is the for the scottish national investment bank it depends on where your politics is as well but i mean certainly another thing that concerns me is that is having the same person on multiple committees um in the scottish parliament as well so i don't think that's a very robust way of working or scientific way of working and so i think yeah absolutely um we have to have more voices being represented and more expert voices and from different and points of view as well so for example i'm thinking very much of the point of view that you do not want to have um a lot of orthodox thinking as far as economics is concerned within the scottish government that politicians need to be listening to different points of view national lobbyists i think tank you know it's almost my contractual obligation to say the scottish government must do better no matter what they actually do but i'm i'm actually going to say that there have been significant improvements over the way that the scottish government has been taking on advice they they have been broadening out a lot of their um their advisory boards i've sat on a few in the last few months and they've been coming up with some really quite you know radical ideas that i hope we'll see and filter into the the government and of course we have the the citizens assemblies which is a revolutionary way of advising government this the scottish citizens assembly is going to have its final meeting um next week to to firm up its final report i've seen an early version of it and i'm really excited to see some of the things coming out of it they've been they've been calling for quite independently quite calling for quite a lot of the things that commonweal have been calling for i think things like a scottish statistics agency and very radically for an upper chamber to the scottish parliament itself made up of citizens so instead of a house of lords a house of citizens to scrutinize legislation uh coming out of the scottish government if we did that that would be a a fantastic thing for scotland a completely unique way of of of running a country and that's ordinary scots have come up with this idea and pushed it so so if we can get more of that kind of thinking advising government you can do amazing things well i wrote a white paper on taxation in school of the common wheel and i'm now doing some updating work on that one of the things i made the point of was that you really do need to reflect a wide range of interests in any body which is trying to represent the people of scotland and that's true of any consultation it always worries me when i hear for example on tax that business people are and accountants are the people who know about tax when actually um the people who really know about tax are those who are actually paying it and that would include pensioners and employees and charities and companies small as well as large etc so any consultation has to have the criteria that the consultation process must hear all of those who are interested and not just the selected uh voices of those who can age out loudest and be afford to give up the time to be present on the consultation and that second point is really critical because if you can't afford to be there then you can't be consulted and a lot of these things require time commitment and so i think there should be a payment made by government by the future independent government to ensure that voices can be heard by paying people to be represented on these bodies so the time lost and the costs of time lost like child care are covered for those who partake because that way you can hear all voices at the moment you just hear those whose employers can afford to send them and that's wrong if we do go down that ubi route there are different ways that you can you use tax to sort of balance the accounts on the other side um whether you want to whichever viewpoint you want to take on on on what the purpose of that tax says there are again lots of different um proposals for how a ubi would be introduced we could probably have a whole panel discussion in that alone a lot of the ubi schemes i've seen that pay at a reasonable rate actually get rid of the personal allowance altogether in effect the ubi becomes your personal allowance and so but if you want to go even higher than that if you want a ubi that actually you know it provides say a living wage then you have to start thinking about not just looking at income tax and other personal direct taxes as the balancer for that you have to start looking at things like carbon taxes environmental taxes wealth taxes land taxes wherever the the money is going after the central bank injects it into the economy this is where the the the especially the mmt people have to start looking at where you start pulling that tax back out it's not always directly on people you look at where it settles into those wealth collectors in society and you start pulling it back out of them well i'm a bit like karen i think there's a there's a better scheme which is a thing called the jobs guarantee by which you you provide a living wage job to anyone who wants one who can't get one in the private sector or the public sector i have modeled the ubi system which does pay a living wage it does require a radical rethinking of a lot of taxation and that does mean yes greg i agree with you not just income tax because it simply would not be possible to do this through an income tax alone it isn't because the changes would be too great if you were going to pay a living wage of something like 16 plus thousand a year as a basic level for everybody so therefore it does require rethinking taxes that cannot be done overnight so if it can't be done overnight you have to make steps from one to the other first of all let's get the benefit system right let's as tim says put in a job guarantee but that requires there to be an independent currency through a scottish reserve bank funding a scottish national investment bank which then also links into the idea that that is the basis of which we build the prosperity on which to pay long-term pensions as well because that is going to invest in the future and if we provide jobs now and skills now then that provides the support for the pensioners to come all of these things have to be treated as a whole critically you can't deal with one in isolation what we need are people who can think about scotland as a country not as little bits of silos here and silos there an issue there but actually you can see it as one big picture as one big journey to be made all joining me together in the overall destiny of a country as a whole and that's the answer to this whole question i believe so it isn't a job guarantee it isn't a ubi it's a bit of both but it's a bit of a change more than a bit of a change to credit universal credit it's more than a change to tax it's rethinking from the beginning onwards and a scottish central reserve bank is part of that process you

2021-01-19 20:30

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