A new report from the Adam Smith Institute, “Quids In: How sterlingization and free banking could help Scotland flourish”, was featured in CityAM, The Huffington Post and The Sun Online. The report argues that an independent Scotland could have a more stable economy than the rest of the UK if adopted a policy of, what it calls, ‘adaptive sterlingization’, which combines unilateral use of the pound with financial reforms to remove government protection of established banks.
Yesterday the Adam Smith Institute (ASI) published a report arguing that Alex Salmond's plan B, using sterling without a currency union, should actually be plan A. The report outlined how "adaptive sterlingsation" could benefit the Scottish economy by acting as a market-based mechanism to stabilise demand during a downturn.
Furthermore, the repeal of financial regulations that privilege established banks could keep Scottish banks prudent as there would be no deposit insurance or central bank to act as a lender of last resort, according to the ASI.
A new report from the Adam Smith Institute said that "sterlingisation", combined with reforms to banking regulations, could lead to banks taking fewer risks, reducing the likelihood of future financial crises.
Sam Bowman, research director at the Adam Smith Institute and the author of the report, said Scotland was "almost uniquely primed for such a system of 'adaptive sterlingisation'".
The prospect of Scotland using the pound with the formal agreement of the rest of the UK, and without the back-up of having the Bank of England as a lender of last resort, was raised as Salmond comes under increasing pressure in the run-up to next month's referendum to set out an alternative to a currency union.
From The Sun Online:
A report by the Adam Smith Institute claims our banks would take fewer risks after independence if they cut ties to the Bank of England.
The study says the result would be greater stability than in the UK — limiting the danger of another disastrous crash like in 2008.
Author Sam Bowman, research director at the Institute, said: “The path outlined would go almost unnoticed by the average Scot.
“But at the next big economic shock they might wonder why their system was so much more stable than that of the country they left behind."
The report, “Quids In: How sterlingization and free banking could help Scotland flourish”, can be read and downloaded for free here.