{"id":9551,"date":"2014-09-17T11:28:08","date_gmt":"2014-09-17T01:28:08","guid":{"rendered":"http:\/\/blogs.unsw.edu.au\/BTOpinion\/?p=9551"},"modified":"2014-09-17T11:29:06","modified_gmt":"2014-09-17T01:29:06","slug":"scottish-yes-vote","status":"publish","type":"post","link":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/blog\/2014\/09\/scottish-yes-vote\/","title":{"rendered":"What a Scottish ‘yes’ vote would mean for Australian markets"},"content":{"rendered":"

Professor Richard Holden<\/strong><\/p>\n

A \u201cyes\u201d vote to Scottish independence on September 18 would mean a great many things for Scotland, and also for the remains of the UK. But what would it mean for Australian business and financial markets?<\/p>\n

It\u2019s tempting to say \u201cvery little\u201d \u2014 what do internal politics half a globe away have to do with us? Yet the Australian dollar strengthened markedly against the pound last week, almost surely due to a poll suggesting that the \u201cyes\u201d vote was ahead 47% to 45%.<\/p>\n

To begin to understand what Scottish independence might do to Australian firms and markets, it\u2019s important to understand what it would do to Scotland and the remains of the UK. The key economic question here is what currency the Scots would use.<\/p>\n

The pro-independence team has been pretty clear about this. They\u2019ll keep using the pound. And it\u2019s true that the UK can\u2019t stop them \u2014 just as Australia can\u2019t stop New Zealand from using the Aussie dollar.<\/p>\n

At first this sounds sensible \u2014 the pound is a big, liquid currency. The haggis \u2014 or whatever a Scottish currency would be called \u2014 would not be. Case closed, right?<\/p>\n

Actually, no. Having a common currency without economic and political integration is a very, very dangerous thing. Monetary policy would be set by the Bank of England, presumably without reference to Scottish economic conditions. So if there was a recession in Scotland one would want lower interest rates, but unless the UK was also in recession of a similar magnitude the Bank of England would be unlikely to cut rates.<\/p>\n

Worse, losing control of the ability to print money means that if Scottish debt got out of control it could not be inflated away. Ask Spain how that works out.<\/p>\n

Worse still, Scottish banks would no longer be implicitly guaranteed by the UK. This is a huge deal.<\/p>\n

The events of 2008 taught us how quickly modern-day bank runs can happen, how devastating the effects can be, and how only overwhelming credibility can prevent disaster. Scotland wouldn\u2019t have that \u2014 and the remains of the UK would have no incentive to help out. Even if it wanted to, markets would have to believe it, and that\u2019s far from a sure thing.<\/p>\n

So it\u2019s clear Scotland would be in a dangerous economic position \u2014 not obviously in trouble right away, but without any macroeconomic fire extinguishers if trouble arose.<\/p>\n

This is a potential worry for major Australian exporters to Scotland \u2014 but there just aren\u2019t very many of those. Australian companies with operations in Scotland could be affected.<\/p>\n

A notable example is National Australia Bank (NAB), whose subsidiary Clydesdale Bank is located in Scotland and could face higher borrowing costs under independence. NAB has said it would seek to shift Clydesdale bank\u2019s corporate registration to England in the event of a \u201cyes\u201d vote. But even in that case it\u2019s a small part of the NAB.<\/p>\n

The bigger concern would be if independence affects the remains of the UK in a significant way, since this is a bigger trading partner for Australia. As we saw last week, markets have rightly been concerned. At the very least there would be an 18-month-plus process of \u201cdemerging\u201d, a process that would be complicated and distracting.<\/p>\n

Yet, whatever the impact on the remains of the UK, it\u2019s hard to see how it would materially impact Australian business. The pound might weaken relative to the Australian dollar, potentially hurting Australian exporters. Having said that, we would all do well to heed former treasury secretary Ken Henry\u2019s advice on Tuesday to be less focused on the real exchange rate in this country. The impact of a modest devaluation of the pound just won\u2019t make much difference.<\/p>\n

Could independence lead to a major blow-up of the UK\u2019s economy? As we learnt in 2008, a major problem in any significant economy can quickly reverberate around the world. We are all interconnected now. A big problem in the remains of the UK could be a big problem for world financial markets, Australia\u2019s among them.<\/p>\n

This is possible, but it seems highly unlikely. The UK is a very large economy with its own currency and a broad web of international economic connections. Scotland is close, historic, and important \u2013 but independence is not likely to lead to an economic meltdown in the remains of the UK.<\/p>\n

Perhaps it could change politics in the UK in a big way and this could have an effect. Perhaps a more conservative Tory leader would emerge. And perhaps that would lead to different economic policies. But that\u2019s a lot of perhapses.<\/p>\n

Demerging Scotland from the UK would be wrenching. It would affect both entities \u2014 especially Scotland \u2014 in lots of ways, including economically.<\/p>\n

Whatever the pros of a \u201cyes\u201d vote for Scotland, it would bring with it huge economic risks. And some for the remains of the UK, too. For Australia and Australian businesses, the risk is small.<\/p>\n

Richard Holden is a professor of economics at UNSW Australia Business School. A version of this post appeared on The Conversation<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Professor Richard Holden A \u201cyes\u201d vote to Scottish independence on September 18 would mean a great many things for Scotland, and also for the remains of the UK. But what would it mean for Australian business and financial markets? It\u2019s tempting to say \u201cvery little\u201d \u2014 what do internal politics half a globe away have […]<\/p>\n","protected":false},"author":336,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12809,14648],"tags":[],"class_list":["post-9551","post","type-post","status-publish","format-standard","hentry","category-economics-2","category-world-economics"],"_links":{"self":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/9551","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/users\/336"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/comments?post=9551"}],"version-history":[{"count":3,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/9551\/revisions"}],"predecessor-version":[{"id":9554,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/9551\/revisions\/9554"}],"wp:attachment":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/media?parent=9551"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/categories?post=9551"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/tags?post=9551"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}