Abstract
This report delves into the potential currency pathways for Wales post-independence. Notably, while much of the existing discourse, especially in relation to the Scottish conversation, centers on choosing between sterlingisation and an independent free-floating currency, we propose considering intermediary options.
Wales is currently grappling with twin deficits – current account and fiscal – both of which official estimates place in the £13-15bn bracket, representing 15-20% of the Welsh GDP in 2022. However, the accuracy of these estimates is questioned. Alternative calculations suggest a fiscal deficit at just over 3% of GDP by excluding items not aligned with Wales' political needs or likely subject to renegotiation after independence. Using the same logic, it would be possible to conclude that the trade deficit is smaller than the official figure.
The choice of a currency regime must take into account trade composition. Trade data from 2022 reveals that a significant portion of trade occurs with the UK (58% of imports, 50% of exports), followed by the EU (16% of imports, 29% of exports). Other major trade partners include the USA, Japan, Canada, and China. After gaining independence, Wales would need to venture into issuing its own debt and borrow internationally, given its lack of foreign exchange reserves. A current account deficit might exert downward pressure on a prospective Welsh currency, while using the pound sterling could choke the economy. Addressing the twin deficit involves options such as currency devaluation and internal devaluation, each reducing domestic purchasing power.
Recognizing that no choice is without challenges, we advocate for the introduction of a Welsh pound. In evaluating the factors influencing such a currency decision, the most salient point is the advantage of controlling domestic asset yield fluctuations, particularly in public debt, through facilities like a lender of last resort and a market maker of last resort. Conversely, arguments centered on transaction costs have diminished in significance due to the efficiency of contemporary payment systems, which have slashed inter-currency fees. We also explore other considerations, including monetary and exchange rate strategies, especially given their implications for Wales.
Wales is currently grappling with twin deficits – current account and fiscal – both of which official estimates place in the £13-15bn bracket, representing 15-20% of the Welsh GDP in 2022. However, the accuracy of these estimates is questioned. Alternative calculations suggest a fiscal deficit at just over 3% of GDP by excluding items not aligned with Wales' political needs or likely subject to renegotiation after independence. Using the same logic, it would be possible to conclude that the trade deficit is smaller than the official figure.
The choice of a currency regime must take into account trade composition. Trade data from 2022 reveals that a significant portion of trade occurs with the UK (58% of imports, 50% of exports), followed by the EU (16% of imports, 29% of exports). Other major trade partners include the USA, Japan, Canada, and China. After gaining independence, Wales would need to venture into issuing its own debt and borrow internationally, given its lack of foreign exchange reserves. A current account deficit might exert downward pressure on a prospective Welsh currency, while using the pound sterling could choke the economy. Addressing the twin deficit involves options such as currency devaluation and internal devaluation, each reducing domestic purchasing power.
Recognizing that no choice is without challenges, we advocate for the introduction of a Welsh pound. In evaluating the factors influencing such a currency decision, the most salient point is the advantage of controlling domestic asset yield fluctuations, particularly in public debt, through facilities like a lender of last resort and a market maker of last resort. Conversely, arguments centered on transaction costs have diminished in significance due to the efficiency of contemporary payment systems, which have slashed inter-currency fees. We also explore other considerations, including monetary and exchange rate strategies, especially given their implications for Wales.
| Originalsprog | Engelsk |
|---|
| Antal sider | 63 |
|---|---|
| Rekvirerende organisation | Welsh Senedd Commission |
| Status | Udgivet - 2024 |