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Nation•Cymru A news service by the people of Wales, for the people of Wales.

Opinion

Consider what you can achieve, rather than focusing on what you cannot

By Mark Mansfield
Coins and Scottish bank notes. Photo Jane Barlow/PA Wire

William Thomson, Founder Scotonomics

As Wynne Godley wrote in his seminal short paper Maastricht and All That, “the power to issue its own money, to make drafts on its own central bank, is the main thing that defines national independence”. Trying to persuade the people of Wales that independence is meaningful, or even possible, without your own currency is a losing strategy. It is a lesson that Scotland wishes it had learnt.

It is always flattering to be given credit where none is due. Dr Ball’s recent opinion piece highlighted my thoughts that Wales should have its own currency and grouped many other opinions under the heading ‘followers of Scotonomics’.

I am absolutely convinced that many people in the Welsh independence movement who support a Welsh currency have never heard of Scotonomics.

Their wisdom, however, I am sure, comes from observation.

Most informed people are aware that over 90% of nation-states issue their own unit of account (the technical monetary operations name for currency/money). Of the remainder, most are partners in a currency union, giving up their own currency but maintaining powerful tools to issue their own debt, like the Euro states.

No similar nation to Wales has ever chosen to use another nation's unit of account.

In Currency options for an independent Wales, a paper commissioned in 2023 by the Welsh Government, Thibault Laurentjoye concludes, “Wales becoming independent….means that it should aim to maximise its ability to create the policy space needed to achieve its political objectives. For reasons that have been made clear, this report argues in favour of creating a Welsh currency.”

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Alex Salmond

Many Welsh indy supporters will also be aware of Alex Salmond’s currency journey. In 2013, Scotland’s First Minister proposed a currency union, very much along the lines that Dr Ball suggests. By 2023, as he explains to me in an interview here, he had changed his mind. A decade too late.

Most commentators in Scotland highlight the currency position as the one thing that ensured our continued life in the Union. Dr Ball’s position is the riskiest of all possible options, and hints at the exceptionalism that comes with a colonial mindset. But others take it much further. Professor Richard Murphy and Common Weal’s Dr Craig Dalzell suggest that had Scotland won its independence with Alex’s plan, we would be in an even worse position as an independent nation than we are as part of this Union! A pretty terrifying idea. The same conclusion would be drawn for Wales if it continued to use Sterling. You need only one historical event to prove the absurdity of that plan.

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The lender of last resort

Imagine a COVID-like episode again. As uncomfortable as it is, it is easy to imagine in a world of continuing warming temperatures and habitat destruction. Would the Bank of England, controlled as it is by the UK Treasury, spend billions of pounds buying up Welsh and Scottish corporate debt? Would it gift our governments billions to source medical supplies to save our health services from collapsing? Be happy to pay part of the wages of millions of people who had chosen to leave the union? To increase welfare payments to two states with their own welfare systems? The UK government's response would be that independence means exactly that. You want to run your own affairs. Then deal with the consequences. And while you are contemplating the unthinkable, what would the response be with Farage as PM?

Those consequences would be borrowing tens of billions of pounds from the Bank of England or international money markets, at eye-watering interest rates. Assuming that the English government was happy to provide Scotland and Wales with the capacity to drive up prices and compete for scarce resources.

The Welsh government, unable to create government liabilities to purchase goods in its unit of account (as the UK did with ease during the pandemic), would have to find money before it could spend it. Raising taxes to cover the costs is impossible in a shrinking economy where most people are at home, unable to work. Without the ability to call on an institution - the Welsh Central Bank - that issues the unit of account used in Wales, you turn the government of a nation into a household. And you accept crushing austerity and a full-blown health disaster.

The everyday business of government

A COVID-like experience would be an extreme case. So, how would the everyday business of the Welsh government proceed using England’s unit of account? It would pay all of its employees in Sterling. It would levy taxes and fines in Sterling. If it wanted to spend more than it collected in taxes, it would have to borrow pounds at rates set by those with the money. It would, in effect, operate very much the same as it does now, with the only change being that it was now able to borrow foreign currency to an extent that could make it insolvent. You can see why things could be even worse.

What difference does issuing a currency make? In brief, when the Welsh government issues its own unit of account, it changes the rules of the game. It now controls where it was once controlled. It is a rate setter rather than a taker.

All government payments, taxes, and fines are made in its unit of account. It creates these units digitally by pressing keys on a keyboard (exactly how the UK government does it now). It never needs to find those units before it can spend them.

It can tax to better effect. It can tax wealth to remove power from the wealthy, not to fund itself. It can tax to change behaviour.

As only government-created money in the Welsh unit of account can initially purchase Welsh government debt, it takes control. It can set the rate of ‘borrowing’ at 0%, or 2% or whatever level it wants. It could also decide not to issue any long-term government liabilities.

It can allocate sufficient funds and set a tax rate to ensure there is no unemployment in Wales.

If a COVID-like experience arises, it can, with 100% certainty, provide those units of account to any individual or institution in Wales. And it does this without a single unit of debt denominated in a foreign currency, such as Sterling.

Should a global event smash against the Welsh economy, it can devalue its currency rather than undergo austerity.

Powers

These are the powers that open up to a Welsh government that issues its own unit of account. It will be up to the Welsh government and its citizens which powers it decides to use.

As Dr Ball and I are supporters of independence for Wales, it is essential to focus on the things that bring us together rather than the differences we have. In both identifying the importance of currency, we are certainly on the same page. But it is, of course, important to defend one's position.

I am one of the most realistic economic commentators who support Scottish independence. Independence is only a means to deliver the ends of a more progressive economy. If the wrong type of independence is chosen, our nations will not be more prosperous. Even if we do, it will be through both chance and good judgment. As independent nations, we are in for a torrid time. But as part of the Union, we are powerless.

As I wrote in the Nation in June, “Both new nations [Scotland and Wales] will be bound to a moribund larger nation….The amount of debt held by the Scottish and Welsh private sectors in Sterling may slow our progress towards prosperity. With a desire to avoid fiscal austerity, our currencies may have to be devalued. Tough decisions lie ahead.” If I am selling snake oil, who would buy it with that sales schtick?

As an institutional economist, I have a worldview that differs from the mainstream neoclassical-informed economic commentary and its accompanying ‘learned helplessness.’ This enables me to fully grasp the potential of independence in Wales and consider what you can achieve, rather than focusing on what you cannot.

William Thomson on X

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39 comments

Neil Anderson

William Thomson of Scotonomics is exactly correct about the power that our own currency would bequeath to an independent Cymru. That and a fair taxation system would be the most powerful tools we as a nation could utilise to reshape our destiny towards sustainability and the elimination of poverty. I challenged Dr John Ball some years ago to say why a sovereign country would not want to control all the economic levers it could have at its command? As yet, I have not had a reply. We can see the poverty of this perspective in the successive Westminster governments since Thatcher. They purport to believe that tax precedes spending (wrong). They do not want to acknowledge how money really works - that the government with a fiat currency can (and does) create money at will, when authorised by parliament. Spending precedes tax (otherwise what would they be taxing?). Given the high interest rate regime the Government is following (very poorly advised by the Bank of England), they are reluctant to borrow either. But are happy to pay - and needlessly so - interest on a lot of it, a bung to the banks (currently around £30b a year). The BoE is also playing a silly game of Quantitative Tightening (QT), another mechanism that just sucks liquidity out of the economy. Instead of creating money and borrowing (at low interest rates) if necessary, they choose - for us - austerity. Our quality of life and all the things that really matter (health, education, care) are sacrificed to serve the economy. A post-independence government in a fully independent Cymru could devise a post-Keynesian economy that serves our society - low interest rates (2 - 3%), low inflation (1 - 2%?) and sensible investments that help our people rather than the rampant speculation (in housing, yachts, aircraft) and unfair tax rates that are damaging most of us.

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Dr John Ball

I'm not prepared to answer this fairy tale in detail, Andersen has again shown his knowledge of economics is questionable. He managed to get Thatcher into his response, what would you have done without her? I am not aware that he "challenged (me) some years ago." If he had sat in and listened to my talk at the Yes Cymru conference in Aberystwyth, or bothered to attend the countless meetings I have addressed on the economy, he would have heard my view. I ask him, and Thomson - answer the issues I raised in my article.

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William Thomson

See my above comment saying I will happily discuss/debate all these issues with you as that is a better format than tit-for-tat comments. However, I know I will never persuade you of your ignorance. So my responses tend to go to people who are open to being challenged.

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William Thomson

OK. First point, please feel free to correct, is that currency is primarily a store of value, must be exchangable etc. This is true of a commodity-based currency. Wales will have a fiat currency. It will be unpinned to a large degree by the domestic demand for that currency, which will be very high as taxes and fines and everything bought in Wales will have to be made in that currency. In this very practical sense, the institutions create the value in the currency. This commodity-based appreciation of money is one of the reasons I suggested your textbook (fixed exchange rate framing). All loans will be written in this unit of account, and all government spending will be in the currency. Like every other modern nation that uses a fiat currency, it will be in strong demand. Wales does not need to sell bonds to foreigners - it can't do that anyway, it can only deposit or exchange government liabilities with institutions operating in Wales, and all purchases of government debt must initially be made in the Welsh unit of account. With regard to foreign exchange. Around 10% of currency transactions are related to trade. 90% are pure speculation. The price of currency rises and falls mainly at the whims of international FX dealers—a sad but true fact. As long as Wales has things to sell or remains a wonderful place to visit, it will have an exchange value: like every other currency in the global north (and beyond). Of course, there are other institutions which underpin currency value, and Wales will have a strong force of law and a powerful political system. It is very well placed (a bit on the periphery, like Scotland) but English speaking (as well as Welsh, of course), but very close to the richest trading block on the planet. It has fantastic natural resources. Perhaps Wales's currency will initially be worth less than the English pound. And if this is likely, there are many things that the Welsh government can do in the lead up to the issue of the Welsh currency to insulate the economy. I don't make these proposals for Wales without a clear understanding of how to create a framework to support a new currency. All currencies are able to float, and this ensures that currencies can find 'the correct' level. A weaker currency is possibly a necessity for Wales to help establish its exports (as outlined in the report commissioned by the Welsh Government). There is nothing in your argument that is not relevant to the countries that have their own currency; all of them manage this process without the concerns you seem to have about Wales. And most importantly, all of them chose to have their own currency and use it, or chose to abandon it before entering a union - and I make the point again: using Sterling is not entering a currency union. As you will see and no doubt argue back, we come from a very different perspective on money and monetary operations. But I hope this helps explain my position/belief that Wales can easily have its own currency. I believe my article - which of course you are free to comment on - highlights the power of currency and why it is not 'just some neutral' institution. It is the most important part of any economy. There would have to be a monumental argument against issuing a currency in Wales to change my view. You haven't made that case in my mind. (We are busy people, so like many of my comments, this was a bit rushed.)

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In reply to William Thomson

Lyn E

A fiat currency does not remove the need to sell bonds to foreigners if a country is running a current account deficit that is not fully covered by inward private investment. 28% of UK government debt (£430 billion) is held by foreigners, as is 30% ($8.5 trillion) of US government debt. The balance of payments has to balance.

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In reply to Lyn E

William Thomson

I'm sorry, Lyn, but your statement reflects a common misunderstanding of how fiat currency systems and government bond issuance actually work. You wrote: "A fiat currency does not remove the need to sell bonds to foreigners if a country is running a current account deficit that is not fully covered by inward private investment." Here's the issue: When a country like Wales (upon independence) runs a current account deficit, it means it is buying more from the rest of the world than it is selling to it — i.e., spending more on imports than it earns from exports and income flows. This creates a surplus for the foreign sector, and a corresponding deficit in either the domestic government or private sector. That's because, by identity, all sectoral financial balances must sum to zero. If the Welsh government runs a deficit that offsets the foreign sector surplus, this will happen through government spending — some of which may go toward imports. But this has no operational connection to bond sales. Bond issuance is not required to "finance" spending in a fiat currency system. Rather, bond sales function as reserve drains — they are used to manage interest rates, not to obtain funding. Foreigners cannot buy Welsh government bonds unless they first obtain Welsh currency. That currency must first be spent into existence. Primary bond issuance is made to institutions with reserve accounts at the central bank, which foreign investors do not have. So to be clear: Wales will not need to sell bonds to foreigners to "fund" a current account deficit. The government can meet the foreign sector's desire to accumulate Welsh financial assets by running a fiscal deficit, and bond issuance will simply accompany that as a monetary policy operation — not a fiscal constraint. I have noted your particualr concern and interest re trade and FX. But this is missing the much bigger role and impact of domestic currency.

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In reply to William Thomson

Lyn E

Thank you for responding. I am less concerned with the technicalities of monetary operations than with the underlying economic relationships.   Any Welsh financial assets accumulated by foreigners must be sold to them, and assets created by governments are usually called bonds or bills. Whether foreigners buy them directly from Welsh government (via a local subsidiary) or on the secondary market is irrelevant for the balance of payments.   Hence my statement, ‘A fiat currency does not remove the need to sell bonds to foreigners if a country is running a current account deficit that is not fully covered by inward private investment’. Sectoral balances must indeed sum to zero. Investors would only wish to hold assets denominated in Welsh currency if they were covered for exchange rate risk, implying that Welsh government bonds issued to fill a balance of payments gap would carry an interest rate premium.   That would constrain monetary sovereignty, as would the need to limit exchange rate volatility, in particular against sterling, to avoid trade and travel disruption. You present monetary sovereignty as a binary choice, but MMT theorists like Stephanie Kelton recognise that it is a continuum and that the dollar has a special position.   The sovereignty of a currency extends no further than that of the state that issues it. Beyond that its acceptance depends on the confidence of foreigners. Sovereign states can issue unlimited quantities of their own currency but not of anyone else’s.   I am indeed concerned about trade and exchange for a Welsh independent state. This has received much less attention than arguments over whether Wales would be ‘too small’ or ‘too poor’, but it would be central to our prosperity. In particular, the challenge of the 160-mile land border with England cannot be wished away.

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William Thomson

Next deposit flight. This is perhaps the biggest misunderstanding. Every single unit of account in Wales is in Sterling and rests on the balance sheets of banks / almost exclusively based in England, or sits in the reserve balance accounts of the Bank of England. Deposits can't leave because they are not there! There is a more general point to be made about monetary operations, but I think I can leave that for another time. I get the concern for sure. And it is related to your first point, this inherent belief that the Welsh pound will not have value. But as I have explained by issuing and demanding the return, and that it is used for exchange in Wales, it has value. Non-financial institutions could withdraw because they don't want to earn a profit in Welsh currency. If this is likely to happen (it won't, as long as they can make profits), it creates space for state or community ownership or Welsh-based commercial businesses. Having a Welsh government adding to net financial wealth will ensure they are there to take a chunk of that. Of course, businesses will be compelled to use it! Like the businesses in every country! However, this is the price of having a business in Wales; the company pays taxes in the Welsh unit of account, allowing the government to provide for and support those businesses in Wales. It must pay its workers in Welsh currency and pay taxes in Welsh currency. This process enables the elected government to manage its financial system and economy. Would you set up a business in Wales if you knew that the interest rates would be set abroad, that your wages would have to be paid by another country etc, during a crisis? That the national government had to borrow from the neighbour before it could create net financial wealth for all of your customers? If you want to go down that route, there is much more business risk there. Of course, it will need to use the currency. Your next point is false regarding transaction costs: often considerable. Perhaps twenty years ago, you could make this argument, but you can't seriously think that this counters the list of benefits I mentioned in my article. On to costs. Yes setting up agencies will need the government to spend to create jobs, refurbish buildings, improve infrastructure etc. Spending currency on institutions is EXACTLY what you want your government to do. This is government money that enters the non-government sector, adding net financial wealth to create real wealth. I hope Wales spends billions of its unit of account doing this. Wales needs more good jobs, better institutions and better infrastructure. Heaven forbid the government has to borrow £s and pay back interest. Loans need to be repaid, and that interest can only come from either the non-government sector (you and all your fellow Welsh citizens drawing down your financial wealth or going into debt) or from more foreigners buying Welsh goods. You see a cost where I see investment and net financial wealth generating productive capacity in Wales. I see the potential in spending. To quote Economist Michał Kalecki. “Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of the spending will be the higher standard of living of the masses. Is that not the purpose of all economic activity?” Hope this all helps.

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Neil Anderson

Keynes said that 'anything we can do, we can afford'. If we were sensible about it, and I think that should mean prioritising needs over wants, an independent Cymru, living within its means, could ensure a fair measure of comfort for all of our citizens, and reduce the threats of man-made climate change, government-made recession and pandemics. Demonstrably, government from Westminster has failed Cymru for hundreds of years. Devolution is a push-me, pull-you game played by lazy politicians in Cardiff and London that has got us nowhere after decades of it. Annibyniaeth is the future.

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Lyn E

You ignore international trade. No country can issue the sovereign currency of another state. This is not a vision of independence but of isolationism in which the rest of the world has ceased to exist. Fantasy economics indeed.

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Neil Anderson

Au contraire, Lyn E, I envisage Cymru as globally active - but in conflict resolution and diplomacy - joining countries like Qatar (how-qatar-became-the-global-capital-of-diplomacy). And perhaps others like Puerto Rico (without armed forces), Switzerland (armed to the teeth) and the Vatican that seek peace in the world. But, I concede, in trade not so much. You will probably be aware that world trade has been declining since about 2007, not least because of the environmental impact of shipping (and aviation) has become unacceptable. It will continue to decline as surpluses diminish and countries, like 'the UK' where it is stated policy, move towards self-sufficiency. Survival will become the imperative.. Cultural growth and exchanges, on the other hand, I am very keen to promote, building links based on building mutual understanding and respect. Your export/import model only enriches elites in each country - we cannot feed the world but we can export knowledge to much greater effect. The absurdities of trade undermine its value - consider 'the UK' exporting potatoes to Germany (about 27m tonnes a year) and importing potatoes from Germany (about 28m tonnes a year). Or Cymru swapping lamb with Aotearoa New Zealand. Who wins this purported 'competition'? Shipping companies of course (but not 'adding value'!). Local producers are undermined by cheaper (often subsidised) imports, as are our workers. And the world certainly does not need more armaments that we are foolishly producing. Exports and imports add elements of instability to national accounts, precarious as they often are. We will need to buy some goods from abroad that Cymru does not and will not produce. We will need to be cautious though about what assets we exchange for them! But it makes sense to minimise the quanta both ways. It is obvious, by definition, that 'No country can issue the sovereign currency of another state', not a claim I made incidentally. But you didn't mention borrowing either... Right now, I am a nationalist. On Independence Day + 1, I will resume being the internationalist I have always been.

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Peter J

You might want to do some research into how Qatar became the 'capital of democracy ' first of all. Deeply unpleasant, and they knew what they were doing.

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Lyn E

My comment was on the article and specifically on trade. It would be more accurate to stay that world trade has stagnated since the financial crash. The decline over the past couple of years has been driven more by geopolitics than by environmental concerns. Self-sufficiency is a reactionary fantasy. Trump is finding out that even the US cannot easily ‘reshore’ manufacturing, and his attempt to do so could be ruinously expensive. Every prosperous small country is an open economy. Your examples of apparently pointless trade across long distances are not that relevant to an independent Wales. Our largest trade partner would by far be England, and our eastern concentration of population and economy means that cross-border trade would often be less costly than within Wales. Borrowing a foreign currency is certainly possible but comes with risks and costs.

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Peter J

I have to agree. As someone with a background in this area, these articles come across as incredibly speculative. So many idealised assumptions, oversimplification of macroeconomics and politically unfeasible, if I was being polite. You could blow arguments in a lot of the article- to take one particular point "creates these units by pressing a button." Technically sovereign currencies can do this but only if there are credible institutional frameworks such as a strong tax collection based, public confidence and international trust with other international private and public institutions. Reality is (from historical precedents) a new currency will face volatility, immediate depreciation, flight of capital and treated as high risk investment with Wales' economic outlook. The challenge these articles pose is they lessen the credibility of independence movements. When you realise these are the future think tanks and advisors of independence politicians, you think twice about the whole premise. Sovereignty costs, ask Brexit Britain.

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Neil Anderson

Thanks, Peter J. You say...these articles come across as incredibly speculative. So many idealised assumptions, oversimplification of macroeconomics and politically unfeasible, Let's compare today's reality - 'fiscal rules', 'balanced budgets', 'national debt is too large', 'pensions invested in the stock market', 'high interest rates', 'quantitative tightening', 'increasing bankruptcies and unstable employment', 'low wages', 'poor benefits', 'control by bankers and the City', and 'hungry children' - just for starters. If you, Lyn E, John Ball, Jonathan Edwards and others want to perpetuate this reality in our Cymru, why bother with independence? These so-called realities are based on fallacies and are destined for disaster. Ask anyone what they think about declining public health, education, welfare cuts, polluted rivers, extreme wealth and extreme poverty...? The poor outcomes are everywhere evident. The people of Cymru might choose a fantasy...but possibly a different one. Let's look at the immediate post-war period 1945 - 1976. Sensible Keynesian policies saw real growth. Not a fantasy but history. World mean quality of life peaked in 1976 and has been falling since - monetarism, trickledown economics and neo-liberalism have destroyed the power of government and the fruits are everywhere visible - private wealth and public squalor. NeoKeynesianism would offer real change that would quickly benefit all. Best we all learn more about 'how money really works' before indulging ourselves further in rightist dogma.

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In reply to Neil Anderson

Peter J

Frankly this is comment is uncouth. For your interest, I was indy curious but when I saw the intellect behind the movements, I quickly realised this people were leading Wales down a pointless path. Some indy supporters are basically left wing reform voters! Very detached from reality and unable to grasp other people's opinion. But specifically what 'realities are based on fallacies' are you referring to?! Aren't you the fellow who thinks we can print endless money?

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In reply to Peter J

Neil Anderson

I recognise that you, Peter J, possess knowledge that I respect and would hope to learn from. But I have not been able to identify anything uncouth in what I wrote. Please elucidate. You then ask me two questions, for which thanks... specifically what ‘realities are based on fallacies’ are you referring to? I listed them - ‘fiscal rules’, ‘balanced budgets’, ‘national debt is too large’, ‘pensions invested in the stock market’, ‘high interest rates’, ‘quantitative tightening’, ‘increasing bankruptcies and unstable employment’, ‘low wages’, ‘poor benefits’, ‘control by bankers and the City’, and ‘hungry children’. These appear daily as commonplaces in the media and political discourse - you must have noticed them - all nonsense or based on nonsense or at least highly contestable, but the reality of the modern life we experience under the neo-liberal capitalism of successive Tory, Labour and no doubt Reform governments. Take the first - fiscal rules - made up by a Chancellor out or their depth, until they no longer suit their purpose and are then ditched. I'll leave you to analyse the fallacies of the others. Then you ask am I the fellow who thinks we can print endless money? I've never said endless, but let's start with the £trillion or so that the Bank of England issues (about 9% printed, the rest electronic, coinage minuscule) every year on behalf of the government. That may seem like endless! Keynes said (approximately) anything we can do, we can afford. I wouldn't advocate that amount for the Bank of Cymru of course, but if there is a need and we have good tax systems (which we currently don't), it should be met. Say, hungry children. Food for thought, Peter J?

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In reply to Neil Anderson

Lyn E

We should indeed understand how money works. It is true that the state via its central bank creates fiat currency before its government spends it, and that tax and borrowing act to reduce competition for resources that could become inflationary rather than funding government expenditure. But rejecting the dogma of fiscal rules does not mean we should fall into the trap of believing that a central bank is all powerful. A state cannot tax foreigners, nor can it oblige them to accept its sovereign currency as payment for goods or services. Money-financed government expenditure increases demand that can mobilise inactive resources. That is desirable in recession. But it cannot create new resources unless it is specifically targeted at doing so. Houses are built on land by skilled workers using construction materials, not by paper notes or computer digits.   The alternative to austerity is not a magic money tree but using our resources for the common good and investing in the well-being of future generations. For the many not the few.

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Keith Parry

Cymru Rydd should issue her own currency in the form of notes and coins. There would be no freedom of the individual if we end up with some form of Chinese digital currency , controlled by the state awarding social credits to people and denying individuals the right to spend their money as they wish.

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Bryan

It doesn't seem wise to test economic experiments unless failure is an option.

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Lyn E

Your Covid-19 example does not support your argument. You neglect that much of what was needed to fight the pandemic (from PPE to vaccines) had to be imported. For that we would still have had to find the (foreign) money before spending it, whether or not Wales had a sovereign currency.

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Undecided

Interesting debate; but the reality is that economics are secondary. Alex Salmond basically said that his 2013 currency union was a political - not an economic - position. He had very clearly calculated that to propose a Scottish currency would turn a large chunk of potential Yes voters against him, so didn’t do it. The same dynamic exists today in my view here. In the final analysis, a significant number of people would not be prepared to take the risk that Dr Ball is right and Mr Thomson wrong. Not that there is going to be a referendum any time soon with a unionist majority in the Senedd nailed on next year and zero interest at Westminster.

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Jonathan Edwards

Undecided, Salmond and Dr.John Ball are all correct. Scotonomics ie Welsh currency is fine as a distant (possible) aim. MMT not so sure. The realities are Wales is nowhere near ready to be self-sufficient. It may be that we do have enough money to cover our needs. But we don't have government structures to organise this yetIreland went through what the English call Doninion Status ie kept the 3 and the Monarchy ( nominally) and got Indy relatively quickly. Because they were practical about it.power comes from running your own armed forces as well as from a Central Bank or currency. Wales is paying for our Defence but, again, England not us is doing the organising.a written Constitution is a must-have. For clarityPlease lets not call a Referendum seeking Indy without a plan for all the above. A frothy fantasy would set us back years. Look what has happened to Scotland.....

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Undecided

Yes, I agree - the practical/incremental approach has to be right. I do get the passion behind the Annibyniaeth now sentiments; but it’s naive. My issue short to medium term interim is the fact that the current devolution model is increasingly dysfunctional.

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Dr John Ball

There is little point in responding in detail, for anyone who knows anything about economics will recognise Thomson's views are naive at best, dangerous at worst. I would though comment on my "position is the riskiest of all possible options, and hints at the exceptionalism that comes with a colonial mindset" to which I take exception. I have spent my life believing - and working for - a sovereign state. What I have presented is careful, research, evidence based economics, not fairy tales. He has changed his mind. In an earlier response, apparently over 200 countries had their own currency, now its 90% of countries issue currency of their own account, whatever that means. I repeat, there are 16 currency unions in the world, comprising over100 separate nations or dependencies who share/use non domestic currency.. Are you really a supporter of independence? Any one reading the section 'lender of last resort' paints a desperate picture of failure - and ammunition for our opponents. This is the problem with someone pretending he understands economics. I ask again. Answer the issues I raised in my article. We are all waiting.

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William Thomson

I would be happy to discuss and debate any of the topics we have covered. It would be interesting and hopefully informative for an audience, but let's be honest, you and I would never agree. You have a textbook understanding of monetary operations based on gold standard thinking. And of course, you are far from alone. These views pour through the current institutions, clogging up any good ideas and continuing to reward the wealthy. That's what neoclassical economics does. Wales wants to rid itself of those outdated views as much as it wants to be independent. I should have added a 'conservative' colonial mindset. By tying an 'independent' Wales to England's unit of account, the new nation will be perpetually beholden to England. Change would move at a snail's pace. If at all. A detailed report commissioned by the Welsh Government reached the same conclusion. Wales needs a new currency. Wales would not be in a currency union should it continue to use Sterling as its unit of account - in the same way it is not in a union now.

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Lyn E

Even with its own currency, Wales would still be ‘beholden to England’ insofar as anyone wishing to trade or travel across the border would be subject to English rules. We need progressive policies across our island.

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Dr John Ball

I have no idea how long this debate is going to last and I'm a little fed up with unsupported negative attacks. It's not about text book understanding or the gold standard or indeed neo-classical economics, my article was based on evidence based research, not untried ideas. Your argument is not helped with references to the wealth (of which of course there are zilllions in Wales) or resorting again to insulting me with having "a conservative, colonial mindset." Personal attacks don't help your case. There is little point in a debate until you answer the issues I raised in my original article.

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William Thomson

That's simply impossible. If the government makes payments and taxes in that unit of account, it is an absolute necessity for those people in or doing business with Wales to use and value that currency.

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anonymous

There is NO way a Welsh currency would be a success; those business entities wishing to trade with Wales will have next to zip confidence in the new Welsh currency - saying otherwise is just wishful thinking. 'Sorry, and all that jazz'.

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Lyn E

A Welsh government could oblige its citizens to pay taxes in its sovereign currency but it could not make the same demand of foreigners or force them to accept it in payment.

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William Thomson

I have just read a fascinating paper looking at the role of independent central banks, which is highly relevant considering that the Bank of England would be Wales' central bank under Dr Ball's currency proposal. It was written by an Australian law academic. "A central bank’s monetary policy can force hundreds of thousands of citizens into involuntary unemployment. In conditions of strong central bank independence, what is the citizen’s recourse if he feels monetary policy is unfair or negligent or biased towards parts of the community? If he complains to the elected Government, he may be told the central bank is independent – it is not the Government’s fault or responsibility. Viewed in this light, outsourcing monetary policy to an unelected central bank seems troublingly undemocratic." So that's your starting point. A profoundly undemocratic position. And now imagine that the central bank is in another country! And is in no way interested or even cares about the macroeconomic conditions in Wales.

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Lyn E

We should avoid conflating arguments, and so reducing complex decisions to binary choices. The arguments around central bank independence are not identical to those around currency sovereignty. Even if Wales did have a sovereign currency, we would still have to decide how much independence to give our central bank. And that is a continuum, not a binary. The independence of the ECB is embedded in the Maastricht Treaty and would require multi-country agreement to change. That of the BoE is in the gift of the UK Government, which could remove it as easily as Gordon Brown granted it. I agree that there would be serious dangers in using a foreign currency, but there would also be heavy costs in setting up our own, as Dr Ball has argued. Again, it is not a binary choice. A sterling currency union is conceivable, with Scotland and Wales nominating members of the Monetary Policy Committee. Or we could opt for the euro, in or out of the EU. We would need to decide how to manage the exchange rate of a sovereign currency. This discussion is useful in clarifying issues, but it is premature to decide now on our best option. If Wales ever becomes independent that will not be for many years. We live in volatile times, and by then the global financial context may have radically changed.

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Dr John Ball

In an earlier response, I referred to the nonsense in the 'lender of last resort' section as a very useful tool for the opponents of independence. That section painted a picture of a dystopian future worthy of our opponents and was self evidently a scare story in support of your ideas - when in doubt, spread fear. To anyone with a modicum of economic knowledge, clearly it made no sense at all, so I decided that it was not worth the trouble of responding. Then I realised, some might believe it. The first section makes no sense. A COVID like episode? Aside for why introduce this, clearly lessons were learned all over the world on how to respond to such an event. Exactly what this has to do with the current debate on currency escapes me. Your lack of knowledge screams from the next sentence. The Bank of England is independent of both the UK Treasury and government and what corporate debt? Sadly the Welsh economy is dominated with external businesses. The next sentence reminded me of the infamous statement by George Thomas in a tv programme in the sixties - that England was paying for our health service. Congratulations on raising that. Same applies to the next sentence. What has paying the millions who have chosen to leave the union about? What union? Millions leaving Wales???? The welfare system in an independent Wales will be paid for from Welsh taxes, not the Bank of England or indeed the English taxpayer - George Thomas again. Two further comments. Like it or not, all governments borrow, but not - as you suggest - for revenue purposes. Quite why any of the above would result with borrowing from the Bank of England at "eye watering interest rates" defies belief. You don't understand that a future Welsh government would build up reserves for any future problems and would not have to go cap in hand to the Bank of England. The final paragraph disgusts me. You say you support independence. yet, despite no evidence and a passing knowledge of economics, you paint a picture of disaster; "shrinking economy," "people unable to work," not to mention the massive debts suggested above. Thank you for this wonderful and helpful interpretation of the future to be used by our opponents, Please ensure that Nigel gets a copy. Oh...I ask again. Will you answer the issues I raised in the original article?

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Neil Anderson

One cannot but be struck by Dr John Ball’s contributions to William Thomson’s interesting article. To wit… I’m not prepared to answer this fairy tale in detail, Andersen has again shown his knowledge of economics is questionable. There is little point in responding in detail, for anyone who knows anything about economics will recognise Thomson’s views are naive at best, dangerous at worst.  This is the problem with someone pretending he understands economics. I have no idea how long this debate is going to last and I’m a little fed up with unsupported negative attacks. Your argument is not helped with references to the wealth … or resorting again to insulting me with having “a conservative, colonial mindset.” Personal attacks don’t help your case. To anyone with a modicum of economic knowledge, clearly it made no sense at all, so I decided that it was not worth the trouble of responding.  But then Dr Ball decided to descend from his Olympian height… Your lack of knowledge screams from the next sentence.  The final paragraph disgusts me. You say you support independence. yet, despite no evidence and a passing knowledge of economics, you paint a picture of disaster; “shrinking economy,” “people unable to work,” not to mention the massive debts suggested above. Thus…so far. After this wonderful collection of condescension, denigration of his peers and some irritated petulance, he then refers to his earlier article. All then, so Senior Common Room.  Nevertheless, Dr Ball is very shy about revealing central tenets of his theory. Not in his earlier article or comments on this one. Apparently, we should’ve have been elsewhere, where he has been regaling audiences at countless meetings.  He claims that an independent country (say, a future Cymru) could (sic) use the currency of another (say, England), which may or may not be true. But Dr Ball goes further – he says we should use the pound, because anything else would be messy. Not much confidence in the people of Cymru there! I admit that I have struggled with the ‘logic’ of his argument. So, I ask him my question again. I hope he can avoid obfuscation and insults, if he deigns to respond. Why would a sovereign country (eg. a fully independent Cymru) would not want to control all the economic levers (ie. including money supply) it could have at its command? I consider that Dr Ball’s views on this issue are eccentric. But then what would I know?

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Lyn E

The starting point for any discussion on our economic future must be recognition that no country is ‘fully independent’ in the modern world. Not even the most rich and powerful, as Trump discovered in the reaction to his ‘independence day’ tariffs.  Nor does any country ‘control all the economic levers’. Everyone is subject to formal agreements, from rules on matters such as international post or telecoms to elaborate treaties like the WTO or the EU. And every business or country has to navigate through volatile global conditions subject to everything from competition and bond markets to climate change and war.   I have yet to read anyone making the case for Welsh independence who takes this question seriously enough. Size and wealth are insufficient. We would have to prosper in the wider and sometimes hostile world.   Our ongoing relationship with England would be central to that. That need not imply adopting sterling. I believe John Ball has in the past advocated the euro, and a sovereign currency is indeed an option. But geography is undeniable.   Whatever our constitutional future, we will still need to trade and move along our 160-mile land border. No proposal for independence can be credible without dealing with that fact.

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Dr John Ball

Answer. You know very little, other than personal attacks on a hard working and life long nationalist. Please refrain from your carefully worded insults and debate the issue like an adult. As far as I am concerned this matter is now closed and there'll be no further comment from me. I debate, not insult. Nigel and friends - and other opponents of independence - will be delighted at the disaster economics Thomson describes. I ask again. I presented a very careful, research and evidence based argument against a separate currency and have asked you and Thomson to address the issues I raised. You have not, because you cannot.

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Neil Anderson

It is disappointing that Dr John Ball has again avoided my challenge to answer why an independent, sovereign country (eg. Cymru) would not want to control the economic levers (notably money supply) it could have at its command? Surely, given his very careful, research and evidence based argument against a separate currency, he would be well-placed to provide a succinct answer. I deduce that his research is in fact irrelevant if it cannot.

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Replying to Peter J Cancel

I have to agree. As someone with a background in this area, these articles come across as incredibly speculative. So many idealised assumptions, oversimplification of macroeconomics and politically unfeasible, if I was being polite. You...

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