Programmes Director of TEN writes for CityAM

Programmes Director of The Entrepreneur’s Network, Annabel Denham, writes for CityAM: ‘UK entrepreneurs are ever-more optimistic – but there’s still work to do.’

WE ALL know entrepreneurs are a positive bunch, afflicted with “optimism bias” – a rare ability to view the glass as half full – which drives them to success. And according to this year’s Hiscox DNA of an Entrepreneur report, business owners across the UK, US and parts of Europe are more optimistic today than they have been for some time.

We’re seeing signs that smaller companies have weathered the storms of recent years and are looking to the future with increasing confidence. Readers of this paper may be particularly pleased to hear that financial service business owners are the most optimistic of all, with a quarter planning to hire senior and junior staff (versus a 14 per cent average) in the near future.

Read the full article here.

The Entrepreneurs Network is a cross-party think tank designed to bring entrepreneurs to the forefront of political discourse and help make Britain the best place in the world to start a business. TEN is based within the Adam Smith Institute and is supported by Octopus Investments, one of the UK’s fastest growing fund management companies specialising in smaller company investing.

Sam Bowman rates an independent Scotland’s currency options in the Financial Times

Research Director of the Adam Smith Institute, Sam Bowman, participated in a panel of expert economists who were asked to rate an independent Scotland’s currency options for the Financial Times:

Sam Bowman, research director at the Adam Smith Institute
Currency union with the UK: 5

In many ways a currency union would be business as usual for Scotland and the least problematic short-term option. However, EU regulations may still require RBS and Lloyds to domicile in the City even under a currency union. In addition, Scottish sovereign debt may trade at artificially low rates thanks to the implicit backing of the BoE, encouraging unsustainable borrowing.
Most seriously, without fiscal transfers between Scotland and the rest of the UK, there is a danger that Scotland would not be able to do anything in response to demand-side shocks to the economy, potentially resulting in prolonged and harmful periods of deflation for Scotland.
Sterlingisation: 9
Sterlingisation could be Scotland’s best option in the medium to long term, especially if combined with banking reforms allowing banks to issue their own promissory notes, backed by the pound sterling on a fractional basis. With no central bank to act as a lender of last resort, banks would be required to make private provision for such facilities. International evidence from the dollarised Latin American states, notably Panama, Ecuador and El Salvador, suggests that this would improve bank soundness by eliminating moral hazard.
Without restrictions on note issuance (and the monopoly protections that encourage excessive issuance), banks would expand and contract their balance sheets in a countercyclical fashion, offsetting changes in velocity with immediate changes in the money supply, reducing the risk of the sort of demand-side recession that took place globally in 2008. This radical option may prove difficult to transition to in the short term, however.
A separate currency: 7
The option of an independent Scottish currency has been unfairly maligned. A free-floating currency would indeed be at risk of speculative attack but with the right mandate it could have substantial benefits as well. For example, were the Scottish central bank to target nominal gross domestic product instead of following an inflation target, a Scottish currency would provide a stable macroeconomic environment that adjusted to shocks automatically, keeping nominal spending levels (or aggregate demand) constant (in a similar way to the free banking option, albeit through a different mechanism). By keeping spending constant along a predictable growth level, an independent Scottish currency would lose purchasing power in recessions but would avoid the “musical chairs” problem of sharp drops in nominal GDP leading to unnecessary structural unemployment.
A free-floating currency would be at risk of the Dutch disease, however, with Scotland’s substantial resource wealth making its other export sectors relatively uncompetitive.

Joining the euro: 2
Joining the euro carries the same risks as a currency union with the UK but on a greater scale. The eurozone is already far from being an optimal currency area, and it is easy to imagine shocks to the Scottish economy (such as a drop in oil prices) that would be barely felt in the rest of the eurozone and hence would receive no policy response.
On top of these potential dangers the ECB has already proven itself to be a badly run institution in practice, strangling the eurozone, stifling recovery and pushing up unemployment with tight money. There is almost nothing positive to be said for this option.

Read the full article here.

‘Can Scotland be independent and keep sterling?’ – ASI report “Quids In” is quoted in The Guardian

The Adam Smith Institute’s report “Quids In: How sterlingization and free banking could help Scotland flourish” is quoted in The Guardian:

With bank runs and bailouts still fresh in people’s memories, Scotland’s sizable financial sector and many other businesses are unlikely to accept such a position.

But the Adam Smith Institute argues that an independent Scotland could flourish by using the pound without permission from the rest of the UK.

The free-market thinktank cites the example of Panama and other Latin American countries that use the dollar as proof that the informal use of another country’s currency “can foster a healthy financial system and economy”.

“Under sterlingisation, Scotland would lack the ability to print money and establish a central bank to act as a lender of last resort. Evidence from dollarised Latin American countries suggests that far from being problematic, this constraint reduces moral hazard within the financial system and forces banks to be prudent, significantly improving the overall quality of the country’s financial institutions. Panama, for example, has the seventh soundest banks in the world,” the institute said in a report last month.

Read the full article here.

Sam Bowman is quoted on the new WEF ranking for the soundness of banks in CityAM

Research Director of the Adam Smith Institute, Sam Bowman, was quoted in CityAM discussing Panama’s placement in the new World Economic Forum ratings on the soundness of banks:

The WEF report shows that Panama has the twelfth-soundest banks in the world, way ahead of the UK, which languishes in 89th place. Why is this is relevant to the Scottish independence debate?

Research director of the Adam Smith Institute (ASI), Sam Bowman, explains:

This is good news for Alex Salmond: Panama uses the US dollar without a currency union, and the ‘Panama option’ may be his best bet for an independent Scotland. Today’s results suggest that emulating Panama by ‘Sterlingising’ without a currency union could give an independent Scotland a remarkably robust financial system because Scotland’s banks could not depend on an unlimited central bank lender of last resort.

Alex Salmond has already said Scotland will keep using the pound if there’s a yes vote, adding “there is literally nothing anyone can do” about it. For its part, the ASI has offered a helping hand to show how an independent Scotland might arrange its monetary policy in the face of hostility to a formal currency union.

Read the full article here.