He added that the ECB's failure to reach its 2 per cent inflation target had resulted in a 'musical chairs' problem, where there is not enough money circulating in the Eurozone to match people's wage demands, in turn resulting in 'unprecedentedly' high unemployment in many Eurozone countries.
'Once, economists warned that Europe faced a Japan-style "lost decade" of unemployment and economic stagnation. That now seems like wishful thinking: because the ECB has kept money so tight and so much wealth has been lost, the Eurozone is likely to be in extremely bad shape for many years to come,' Bowman said.
'If the ECB was really willing to do "whatever it takes" to reach its inflation target, including quantitative easing, it could bring the Eurozone back to growth. The eurozone has needed easier money for years now; now that Germany does too, it may finally see it.'
NEWS
Press Release: An independent Scotland should use the pound without permission from rUK
- An independent Scotland using the pound outside of a currency union would have a more stable financial system and economy than it has now or than a currency union could provide.
- ‘Adaptive sterlingization’ – a combined policy of unilateral use of GBP without a formal currency union and reform of Scottish banking regulations - would reduce risk-taking and increase competition in banking, significantly reducing the prospect of large-scale bank panics and financial crises.
- The 'dollarized' economies of Latin America – Panama, Ecuador and El Salvador – provide strong modern-day evidence that banking systems do better without central lenders of last resort.
An independent Scotland could flourish by using the pound without permission from the rest of the UK, a new report released today (Thursday 21 August) by the Adam Smith Institute argues.
The report, “Quids In: How sterlingization and free banking could help Scotland flourish”, draws on Scottish history and contemporary international examples to argue for the adoption of what it calls ‘adaptive sterlingization,' which combines unilateral use of the pound sterling with financial reforms that remove protections for established banks while allowing competitive banks to issue their own promissory notes without restriction. This, the report argues, would give Scotland a more stable financial system and economy than the rest of the UK.
According to the report, adaptive sterlingization would allow competitive, private banks to issue their own promissory notes backed by reserves of GBP (or anything else – including USD, gold, index fund shares or even cryptocurrencies like Bitcoin). With each bank given powers to expand and contract its balance sheet relative to demand, this system would be highly adaptive to changes in money demand, preventing demand-side recessions in modern economies such as the ones that led to the 2008 Great Recession.
The report’s author, Sam Bowman, details Scotland’s successful history of 'free banking' in the 18th and 19th centuries and the period of remarkable financial and economic stability which accompanied it. Historical ‘hangovers’ from this period, like Scotland's continued practice of individual bank issuance of banknotes, are still in place today, making Scotland uniquely placed for a simple transition to the system outlined in the report.
The report highlights evidence from 'dollarized' economies in Latin America, such as Panama, Ecuador and El Salvador, which demonstrate that the informal use of another country’s currency can foster a healthy financial system and economy.
Under sterlingization, Scotland would lack the ability to print money and establish a central bank to act as a lender of last resort. Evidence from dollarized 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 report concludes that Britain's obstinacy could be Scotland's opportunity to return to a freer, more stable banking system. Sterilization, combined with reform of Scottish financial regulation that:
-
removed government liquidity provisions to illiquid banks,
-
established mechanisms to ‘bail-in’ insolvent banks by extending liability to shareholders, and
- shifted deposit insurance costs onto banks and depositors rather than taxpayers,
would improve standards and competitiveness in banking, while significantly reducing the prospect of large-scale bank panics and financial crises.
Commenting on his report, the Research Director of the Adam Smith Institute, Sam Bowman, said:
The Scottish independence debate has repeatedly foundered on the question of currency, but if Scots look to their own history they will find that their country is a shining example of how competition in currency and banking can ensure a stable and effective banking system. Scotland’s free banking era was an economic and intellectual Golden Age, and its system of competitive note-issuance was recognised by such thinkers as Adam Smith as one of the root causes of the country’s prosperity during this time.
The examples of Panama and other dollarized Latin American economies are proof that countries can thrive when they unilaterally adopt another country’s currency. Combined with a flexible, adaptive banking system, the unilateral use of another country’s currency can instill a discipline in a country’s financial sector that neither a national currency nor a currency union can provide. Scotland’s banking system is almost uniquely primed for such a system of ‘adaptive sterlingization’. The path outlined in this paper would go almost unnoticed by the average Scot – until the next big economic shock, when they might just wonder why their system was so much more stable than that of the country they’d left behind.
Notes to editors:
The Adam Smith Institute takes no position on the Scottish independence referendum and produces research for public information purposes only.
For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778207.
The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.
Ben Southwood debates the success of privatized railways on BBC Radio Kent
The Adam Smith Institute's Head of Policy, Ben Southwood, debates the southern Regional Secretary for the Trades Union Congress, Megan Dobney, over the success of privatized railways on BBC Radio Kent. Listen to the debate here.
Sam Bowman is quoted in The Freeman on Britain's student debt problem
Research Director of the Adam Smith Institute, Sam Bowman, was quoted in The Freeman on Britain's growing student debt problem.
The core difference between the British and American systems lies in the terms of repayment. American students typically have to start repaying 6 months after they graduate. Opportunities for loan forgiveness are extremely limited, and loans cannot be discharged via bankruptcy. By contrast, British students don’t have to start repaying until they are earning £21,000 ($36,000) per year. They must then pay 9 percent of their gross income as long as they stay above the threshold. Their outstanding balance is automatically forgiven 30 years after it became eligible for repayment. Also, the loans do not appear on their credit report.“The thing people worry about with debt is that they won’t be able to pay it back. The way this is structured means that is not a worry ever, and it doesn’t follow you around until your old age,” says Sam Bowman, Research Director at the Adam Smith Institute, a free-market think tank.
Bowman finds it helpful to understand loan repayment as a tax. “You can either think of it as a graduate tax or it’s the best debt in the world,” he says. “It makes sense to think of it as a graduate tax, a specific kind of tax on a specific action that is designed to offset the cost of that action.”
Read the full article here.
Charlotte Bowyer argues against a crackdown on legal highs on Sky News
The Adam Smith Institute's Education Manager - Charlotte Bowyer - debates the Deputy Political Director of the Centre for Social Justice over the benefits and harms of cracking down on legal highs on Sky News.
“Sweet FA – Why foreign player crackdowns hurt English football” is featured in The Telegraph
A new report from the Adam Smith Institute - “Sweet FA – Why foreign player crackdowns hurt English football” - is featured in The Daily Telegraph.
Greg Dyke’s plan to cap the number of foreign players in English football has been denounced by The Adam Smith Institute, which claimed there was “practically no relationship whatsoever” between that and the performance of the England team.
A report by the influential think tank also warned that artificially limiting the amount of overseas talent in the Premier League would harm its clubs’ ability to compete in the Champions League and Europa League.
One of the key recommendations of Football Association chairman Dyke’s commission on English football this summer was a limit on the number of non-European Union players in the English game, which, it was claimed, would increase the number of England-qualified footballers.
The received wisdom has been that a bigger domestic talent pool is the panacea to the national team’s travails at major tournaments, a view directly challenged by research conducted by the Institute’s head of policy, Ben Southwood.
Read the full article here.
The report, written by ASI Head of Policy Ben Southwood, finds that the Football Association’s plan to crack down on foreign players in the Premier League would damage the league’s quality and success in European club competitions, without any benefit to the English national team’s performance.
Read the full report here: “Sweet FA – Why foreign player crackdowns hurt English football”
Sam Bowman argues the Eurozone is facing a lost decade in the City AM Forum
Research Director of the Adam Smith Institute - Sam Bowman - argues that the Eurozone is facing a lost decade in the City AM Forum.
Youth unemployment in Greece is above 50 per cent. All Italian growth in the last 15 years has been wiped out.And Germany’s economy, previously healthy, shrunk in the second quarter.
Across the Eurozone, unemployment is above 11 per cent, and youth unemployment is above 23 per cent. These problems are likely to persist for many years, with youth unemployment leaving a lasting legacy of depressed earnings.
Europe’s profound supply-side problems, including restrictive labour laws and high taxes, still cannot explain why it slumped in 2011 as the rest of the world began to recover.
The reason is that the European Central Bank (ECB) has persistently undershot its inflation target, putting the Eurozone into a state of perennial near-deflation, with too little demand to get European workers into jobs. Only more inflation will change this.
A lost decade now seems inevitable. It is up to the ECB to decide how bad it will be.
Read both sides of the debate here.
ASI report “Sweet FA – Why foreign player crackdowns hurt English football” is featured on UK Radio talkSPORT
A new report from the Adam Smith Institute, “Sweet FA – Why foreign player crackdowns hurt English football” is discussed on UK Radio talkSPORT. Listen to the programme here.
The report, written by ASI Head of Policy Ben Southwood, finds that the Football Association's plan to crack down on foreign players in the Premier League would damage the league’s quality and success in European club competitions, without any benefit to the English national team’s performance.
Read the full report here: “Sweet FA – Why foreign player crackdowns hurt English football”
ASI Research Director's comments on Germany's shock 0.2% contraction are featured in The Daily Mail
Comments from the Research Director of the Adam Smith Institute, Sam Bowman, regarding Germany's shock 0.2% contraction were featured in The Daily Mail:
Inflation in the eurozone dropped back to 0.6 per cent in July from 0.7 per cent in June, facing the ECB with the spectre of deflation and prompting fresh calls for another round of quantitative easing.Sam Bowman, research director of the Adam Smith Institute, said Germany's contraction might be a wake-up call to the ECB that it is driving Europe's economies into the ground.
'Tight money is almost entirely to blame for the Eurozone's current problems: as the rest of the world has slowly recovered from the Great Recession with relatively accommodative monetary policy, Europe has sunk back into deep recession,' he said.
Read the full article here.
ASI report “Sweet FA – Why foreign player crackdowns hurt English football” is featured in City AM
The Adam Smith Institute's latest report, “Sweet FA – Why foreign player crackdowns hurt English football” is featured in City AM.
Football Association chairman Greg Dyke proposes limiting imports to English leagues, arguing that more playing time for homegrown youngsters will improve England’s performance.But a report published today by think tank the Adam Smith Institute found no link between the number of minutes played by native footballers in England, Spain, Germany and Italy and their national team’s world ranking.
Read the article here.
The report, written by ASI Head of Policy Ben Southwood, finds that the Football Association's plan to crack down on foreign players in the Premier League would damage the league’s quality and success in European club competitions, without any benefit to the English national team’s performance.
Read the full report here: “Sweet FA – Why foreign player crackdowns hurt English football”
ASI Report "Sweet FA – Why foreign player crackdowns hurt English football" is featured in the Yorkshire Post
A new Adam Smith Institute report, "Sweet FA – Why foreign player crackdowns hurt English football" is featured twice in the Yorkshire Post as a front-page news story and feature article.
Despite its claim to be “the most watched league in the world” there have long been concerns about its impact on the England team with fewer young, homegrown players getting the chance to play on the big stage.However, a new report published today by the Adam Smith Institute challenges the view that restricting the number of overseas players would benefit the national game, claiming there is no link between the amount of time home-grown stars play in the Premier League and the performance of the English team.
The study, the first research of its kind, found that the same goes for the other major leagues in Europe — Spain’s La Liga, Germany’s Bundesliga and Italy’s Serie A.
It also pours cold water on the FA’s plan to crack down on foreign players in the Premier League, saying it would damage the league’s quality and success in European club competitions.
The report, Sweet FA – Why foreign player crackdowns hurt English football, has been pieced together using Fifa’s world rankings, as well as data recording the number of hours played by English footballers over a period stretching more than 20 years.
Its author, Ben Southwood, head of policy at the economic think-tank, says the findings challenge the idea that “importing” foreign footballers to the UK means English players have fewer opportunities to play for the top clubs.
Read the full feature here.
The report, written by ASI Head of Policy Ben Southwood, finds that the Football Association's plan to crack down on foreign players in the Premier League would damage the league’s quality and success in European club competitions, without any benefit to the English national team’s performance.
Read the full report here: “Sweet FA – Why foreign player crackdowns hurt English football”
Media contact:
emily@adamsmith.org
Media phone: 07584778207
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