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To me it seems that many countries smaller than Scotland have had success with their own currency. They can use a peg or a floating peg to a currency that belongs to a major trading partner. An important thing is whether or not they tend towards a primary surplus in their trade balance. Another critical factor is the effectiveness with which they regulate the underwriting for credit creation. If that is strong they should have few fundamental problems if they manage their peg properly.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 10:08:01 AM EST
In principle as long as they have foreign reserves in excess of the gross foreign-currency liabilities of their domestic economy, they're okay. This, of course, requires them to gradually devalue their currency if and as they accumulate a current account deficit.

In practice, there may be the issue of liability dollarization. (That's part 2 of a 3-part series: part 1, part 3)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 10:40:33 AM EST
[ Parent ]
Ramanan's three part series on liability dollarization is excellent. I had suspected that there were substantial limits to the claims of MMT, but I also think that, in the current situation and for the USA, the recommendations for a job guarantee, etc. are valid.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 03:45:16 PM EST
[ Parent ]
And if the biggest danger lies in having a properly run monetary system....well, there is a lot about the monetary system of the UK they could improve in their own system - like recognizing that monetary policy is not the cure for everything. As to the BoE blackmailing Scotland, I am reminded of the adage: "If I owe the bank $100,000 and can't pay I have a problem. If I owe the bank $100 million and can't pay the bank has a problem.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 11:32:38 AM EST
[ Parent ]
Scotland is not Jersey or The Isle of Man.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 11:34:50 AM EST
[ Parent ]
Spain is not Uganda.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 11:35:12 AM EST
[ Parent ]
Consider the following game. Scotland moves first.

Scotland: we want to dissolve the political union
England: okay, but then we want to dissolve the monetary union

Scotland to move.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 11:34:58 AM EST
[ Parent ]
OK, we can do that the easy way or the hard way.

The easy way involves a negotiated arrangement to replace or unwind the resulting cross-border financial obligations in an orderly, well-regulated manner.

The other option is that we refuse to enforce any debts held by residents of now foreign countries against residents of our country.

England's move.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 01:38:13 PM EST
[ Parent ]
Not an option. At least not if they want to join the EU.
by IM on Tue Sep 9th, 2014 at 01:51:44 PM EST
[ Parent ]


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 02:03:43 PM EST
[ Parent ]
Cyprus repudiated foreign liabilities under EU pressure so obviously it remains in the EU after doing so.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:17:25 PM EST
[ Parent ]
To the hard option, England might retort that a lot of Scottish citizens and firms have entered into contracts under English law where Scots Law was available and that it's the London courts that need to enforce them, not Scottish courts.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:16:32 PM EST
[ Parent ]
And if English courts can convince Scottish officers of the law to execute those rulings, then they have a point.

Otherwise, the opinions of English courts are merely opinions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 10th, 2014 at 03:07:02 AM EST
[ Parent ]
Or if these citizens are also dual UK citizens (it's not yet clear how they'll be able to stop this) with assets in the UK. In fact, if both countries are in the EU it will be easier, as some British people who bought property in Northern Cyprus found out the hard way.
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Sep 10th, 2014 at 03:24:19 AM EST
[ Parent ]
They can use a peg or a floating peg to a currency that belongs to a major trading partner.

That is precisely what I mean with option two; and that doing it with the Sterling may not be the wisest strategy.

You might find me At The Edge Of Time.

by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Tue Sep 9th, 2014 at 02:12:58 PM EST
[ Parent ]

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