THE ongoing financial ping pong between Scotland and the UK over which currency a potentially soon-to-be independent Scotland must opt for is a curious one indeed. Alex Salmond, Scotland’s first minister, has vigorously asserted that an independent Scotland could continue to use the Pound even if the UK disapproves, arguing that the Pound is an “internationally tradable currency”.
Opponents of such an act, .e.g. Alistair Darling (former UK finance minister), have equally argued that “sterlingisation” of Scotland would put it in the same category as Panama and by implication Zimbabwe, which unilaterally uses the dollar, inter alia, as legal tender in their markets.
Adding fuel to the debate has been a recent UK treasury analysis paper which curiously concluded that there is “no evidence” a currency union between the rest of the UK and Scotland, post-independence, could work. Moreover, the report concluded that the rest of the UK would be exposed to greater financial risk if it shared a Sterling zone with an independent Scotland.
The foregoing therefore raises fundamental questions as to what then are the currency options for Scotland. Should Scotland opt for a formal currency union with the UK? What about an informal currency union akin to what Panama or Zimbabwe has with the US dollar? Why not its own currency? And the Euro – is it an option for Scotland, given its [the Euro] recent imbroglio which caught the likes of Greece with their pants below their knees and ipso facto left them financially castrated and incapacitated?
Enter Zimbabwe’s much-admired multicurrency system. Reason dictates that Scotland must turn to Zimbabwe for a lasting solution to its currency conundrum. Instead of adopting just one currency like the Pound or Euro or US dollar, Scotland must adopt a basket of currencies through the so-called multicurrency system as has been successfully done by Zimbabwe.
Zimbabweans can switch currencies, .i.e. switching from depreciating ones to stronger ones with relative ease. Consequently, adoption of the multicurrency system means that Zimbabweans are now immune to the adverse impact of either exchange controls or foreign exchange restrictions, since these now belong to the defunct and extinct order of phenomena.
The question may arise as to what else Scotland could derive from the adoption of the multicurrency system. It is worth mentioning that Zimbabwe has managed with relative ease to rid itself of the scourge of inflation which currently stands at about 0.33 per cent, and, is probably the lowest in the world.Advertisement
Hitherto, i.e. prior to the adoption of the multicurrency system, Zimbabwe’s inflation stood at a mind-disorienting figure of over 500 billion per cent, and, since then, the rate of inflation has taken a dramatic precipitation down to 0.33 per cent as of January /February 2014. That is an achievement of gargantuan proportions whichever way one looks at it.
Scotland can therefore adopt the multicurrency system, and, severally benefit from, (i) lower inflation, (ii) abolition of exchange rate controls, (iii) price stability, (iv) currency switches from depreciating ones to stronger ones, among other benefits.
As this writer has argued before in this forum, Zimbabwe will continue to lead the world in the multicurrency debate for ages to come. To cement and concretise its currency leadership on this issue, the country must provide certainty by unequivocally and unambiguously asserting through some statutory instrument like a government gazette that the multicurrency system is here to stay for up to, say at least 20 years , at which point the system could be reviewed.
That way, then, real capital inflows would begin to flood the country’s financial markets. Currently, because of the lack of this particular certainty, investors adopt a wait and see approach, opting for short-term liquid investments which are easily convertible to cash at the blink of an eye should some government official decide, at the stroke of a pen, to outlaw the multicurrency system.
In the meanwhile, those who are closer to Scotland’s first minister, Alex Almond, must please tell him to turn to Zimbabwe for his country’s financial salvation.
Ndlovu is an independent financial analyst and he writes in his personal capacity.