St Paul's Institute

Who Says You Can't Keep the Pound?

by The Rt Revd Dr Peter Selby

Posted: 25 Feb 2014

So the politicians have spoken: the Scots can't have it both ways. They can stay in the Union and 'keep the pound' - one of the most successful currencies in history, we are being told. Or they can leave, in which case they have their own currency, and can't expect to be part of a currency union in which they continue to have a share in its governance.

There we have it: being an independent country (as the referendum voting paper has it) means having a currency you control - and it doesn't mean having the right to a say in someone else's. Sharing currency means sharing control and (again, we are told) the story of the euro shows that you can't share a currency if you don't pool sovereignty. So if Scotland wants to end its sharing of sovereignty with England, Wales and Northern Ireland it is now being told that it won't share their currency either.

It has been interesting to listen to this debate so soon after taking part in an event with Felix Martin on his book Money: the Unauthorised Biography. One the most persuasive points he was making was that money is not a 'thing' but can most appropriately be described as a 'set of ideas'. This makes a simple point: on the one hand money carries sovereign authority, and only the sovereign can create money that is 'legal tender'.

But what happens if the people who use the money don't accept the authority of the sovereign? After all, have we not learned, from Felix Martin as from others, that money is not a 'thing' you use to replace the world of barter - which has never existed? Rather something becomes money if you trust it. A government can preside over a 'currency union' if - and only if - the people whom it governs trust it with the running of the economy. Money is credit, and credit has its roots in 'trust'. For something to be trusted as money - able to be tendered in exchange for goods or services in the confidence that it will be received and can then be handed on to others in turn in exchange for different goods and services. A government may say, with the forces of law and order behind their statements, that only pounds sterling will be accepted in payment of taxes and debts to the government. But what no government can do is force people to trust the coins, notes and entries in ledgers just because the government says so.

If the people stop trusting the money the state gives them to use - as happens, for instance, when hyperinflation sets us - they will stop using it and use something else instead. The UK has resolutely refused to join the eurozone; it has insisted on controlling its own money, printing its own notes, validating its own currency. But that didn't stop euros trading freely in Belfast when it suited local traders to accept transactions entered into by people from the Irish Republic. A recent visit to Uzbekistan showed me quite clearly what happens when a population refuses to trust the currency proffered to them by their government: they stop using it, at least for transactions of any size, and use US dollars instead. The Uzbek people are quite happy to use Uzbek soums for transactions in the vegetable market; but when it comes to buying and selling houses, it has to be dollars. And if a people decides to use US dollars for large transactions that effectively means that it is the US dollar that has to be there to back the Uzbek soum - because once it is known that there aren't enough dollars in reserve to back the soum nobody will use it any more.

So there is a fundamental democracy - or perhaps we should coin the word democredit instead - about the status of a currency. The currency of a country is what the people trust; and what they cease to trust will no longer serve as currency.

The tragedy through which we have passed of late is quite simply that the people have been persuaded to hand over their 'credit', the trust they place in their currency, to a small plutocratic elite, the proprietors of the banks. And when the banks failed, government rightly saw that what was at stake was nothing less than the trust of the people in their currency, and with that the ability to trade at all.

And what that shows is that in the process of debating the possibility - or not - of a currency union based on the pound sterling the Scottish people might discover that they have in fact two votes to cast about Scottish independence. Alongside the political question of whether Scots trust the other Brits to run their country and pass laws for it there is another question: who will they trust with their money - not just trust to have it and spend it, but trust actually to create it. The politicians might just discover that once one side or the other has won the political battle that will be decided at the referendum there will be another, perhaps not immediate - vote that will take place, as the Scots decide which government they really trust with the most important thing they need a government to be trusted with - their money.

About this author

The Rt Revd Dr Peter Selby is the former Bishop of Worcester. Following his role as part of the Interim Directing Team from 2012-2014, he continues as an adviser to St Paul's Institute.

Comment on this dialogue


The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.