Will Scotland be the first country to issue a national digital cryptocurrency? (Part 2)

This section explains part of why the Scots feel they can successfully issue digital currency.

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1.2 Importance of Transferring and Decentralizing Monetary Power

The current debate and proposals for devolution in Scotland focus on the transfer of fiscal powers such as taxation and spending. But since the financial crisis, the Greek tragedy has slowly unfolded, and if there is a lesson we can learn from it, it is that fiscal independence is ultimately meaningless without a bit of monetary sovereignty.

The Scottish government should be wary of the risk of also replicating the shortcomings of the eurozone, where fiscal power is autonomously distributed, subject to certain constraints, while monetary policy is centralized.

There has been no good way to synchronize the economic cycles of out-of-step countries with those of the dominant eurozone countries. After the financial crisis, the poorer countries in Europe that had joined the eurozone were unable to devalue their currencies against the richer countries and boost exports. Without an established mechanism to recycle the surpluses of the richer eurozone countries, the result has been economic stagnation, deflation, and very high unemployment.

Monetary and fiscal policy have traditionally been viewed as responsible, very distinct activities in separate entities:

1. • Monetary policy (as currently implemented) aims to keep inflation low and stable, normally by changing the central bank's interest rate to influence the money supply. Today it is carried out by central banks that are independent of political control.

2. •Fiscal policy involves the government changing tax rates and levels of government spending to support the economy, manage the national debt, and redistribute wealth.

Since the global financial crisis, the use of quantitative easing (QE) at the center of monetary policy around the world has blurred the distinction between these two activities. Some claim that quantitative easing is fiscal policy because it involves injecting liquidity (or money) into certain sectors of the economy (financial markets and banks) and has a redistributive effect because it increases asset prices. (Note 6, Note 7, Note 8)

Just as there is no clear line between fiscal and monetary policy, the decentralization and control of these policies is not mutually exclusive or an all-or-nothing issue. In reality, there are different degrees of autonomy.

The Scottish government has been given a credible commitment to increased fiscal autonomy, if not full self-government, in the terms of the post-independence referendum devolution settlement. The proposal also increases monetary autonomy, without requiring full monetary independence and a full switch to a new national currency.

1.3 What is currency?

Most people use money every day, and many go to great lengths to obtain it. Yet, despite its centrality to our lives, few people actually take the time to understand what money is, how it is created, how its design affects our economy, and whether the monetary system could be improved.

As an integral part of any civilized society, we naturally use money. Yet the origin and development of money is shrouded in myth. Here is the classic narrative from Adam Smith: (note 9) He saw money emerging to overcome the inefficiency of barter. To solve the problem of the "double match of needs" (note 10) in barter, traders began to use commodities whose value represented other tradable items. Slowly, according to this story, a banking credit system emerged, along with the circulation of credit notes backed by commodities.

Although this seems like an intuitive theory, as anthropologist David Graeber points out, "Our standard account of the history of money runs exactly backwards. We didn't start with barter, discover money, and then eventually develop credit systems. It happened in precisely the other way around." (11)

Prior to the invention of modern markets and commodity money, there is evidence that measurable value was created from a social perspective through one-way gifts of value to resolve disputes. As societies became more complex, these behaviors became more formalized and fixed in public gatherings. (Note 12)

The first recorded 'currency' systems were in fact centralized bookkeeping systems, supervised by temples or palaces, that recorded credits and debits, usually in the form of agricultural commodities such as cattle, grain and tools. (Note: 13)

Not as a cost-minimizing medium of exchange as the orthodox economic story, but as a unit of account for the settlement of debts. Graeber argues that the later development of metal money - gold and silver coins - arose in times of war, when the needed credit system network failed, so minting coins to pay soldiers was the simplest and most effective way to avoid bad credit risk (note 14). The modern fractional reserve system began when goldsmiths issued receipts for depositing precious metals, and these "notes" were used to repay debts. Over time, the development of the craft has led to the current monetary system, in which 97% of money is issued by commercial banks through loans and cleared when the loans are repaid. Through interbank clearing, these banks act collectively to undertake today's centralized accounting system (note: 15).

This history of money is important because it shows that money has neither a prescribed form nor is it neutral. Rather, it is a social technology that does not require design or rules tied to any particular characteristics. Laws prohibit certain activities and define money in certain ways, but these are merely human constructs; they are not laws of nature.

What most economists define as money is that it usually performs four core functions. The functions it can be used for are:

1. Medium of exchange: Allows us to purchase goods and services.

2. A unit of account, meaning it gives us an idea of ​​the relative prices of different things.

3. Store of value, people believe that this money will still have the same purchasing power in the future.

4. Engage in the final payment or settlement method.

When it comes to money, a very promising idea, and a fairly relevant proposal, is to define money as an agreement within a community to serve as a medium of exchange (note 17), which highlights two important issues: by agreement, any community has something as money, with the most important function of money being to facilitate transactions. Another useful description is, "Money is not a metal; it is inscribed with trust" (note 18), which clearly states that the value of money is not backed by some physical asset, such as commodities like gold, but actually comes from the inherent trust in the system, which means that for a person to find something useful today, is their most important asset, it will still be useful tomorrow.

The way we design money empowers and enriches some people while disempowering and impoverishing others. It gives banks the ability to create and distribute new money; it charges interest which increases inequality; it drives up asset prices in favor of those who already own assets. We, as humans, created these monetary systems, and over time, they are judged to be no longer fit for purpose and should be changed accordingly.

1.4 New Scottish Currency

The implementation of a parallel currency, as described in this article, will provide a channel for injecting more purchasing power into the economy as a countermeasure to the effects of a recession imposed by spending cuts. This will provide funds directly to those citizens who are most likely to pass through the economic cycle. It will:

1. Provide a free and inclusive payment system that allows all individuals and businesses to transact electronically freely (Note: 19)

2. Allow small and medium-sized enterprises, which account for as much as 64% of the total merchants but have not yet accepted electronic payments, to also use it.

3. Prove that a new currency can be implemented.

4. Laying the foundations for a prosperous Scotland.

This new money would not be created as interest-bearing debt, which was impossible at that moment, but would be distributed directly and equally to all adult citizens. In times of austerity, this new monetary policy tool could be very useful.

Based on the learnings of the past 25 years of currency reform and complementary currency movements, we propose a new digital Scottish currency. The best applications from each are combined into a new economically viable national complementary currency.

We named this new currency "ScotPound" (Note: 20) and its main features are as follows:

1. A purely digital currency that operates over mobile phones, land lines, the Internet, etc.

2. It operates on the basis of a not-for-profit public enterprise (BancaAlba) (Note: 21) payment platform.

3. The Scottish Government receives all or part of the tax revenues paid to it, and purchases public services.

4. Most businesses in Scotland accept full or part payment for goods and services (section 4.1.2).

5. Businesses accept ScotPound payments with no fees or charges

6. The monetary unit is equivalent to sterling (i.e. denominated in sterling), but cannot be converted into sterling and can be easily integrated into the Scottish economy.

7. The taxes paid with ScotPound are the same as those paid with pounds sterling, but because the currency is digital, tax evasion is more difficult because all accounts are related to legal persons or companies and cannot be "offshore".

8. Every adult citizen can open an account for free and is offered an initial bonus of S£250.

Each S£250 fund will start with a purchasing power of S£1 billion (Note 22). Like other monetary systems, such as the pound, euro, dollar, and yen, this initial issuance of S£1 billion will be brand new money, neither from existing taxes, nor purchased from anywhere, or backed by gold or other currencies, they are simply issued by BancaAlba (Note 23).

As a payment network is formed between businesses that accept the new currency when buying and selling, the currency will gain intrinsic value. Businesses can choose whether to accept 100% S£ payment, or a proportionate amount, such as 50%. This will be particularly relevant for high-value goods. In addition to business acceptance, the Scottish Government will also accept the new currency for certain local taxes, fines, and council housing rents (note 24). This is possible because many taxes have been, or will be, devolved in Scotland (see section 1.5 below). Businesses and the Government will then spend the currency they receive by paying staff and paying for goods.

The new currency is not intended to replace the pound. It will be a supplementary source of purchasing power and a new socially endogenous digital payment system (Section 4.3). The differences between ScotPound and the pound are listed in Table 2.

For future independent self-government votes, successful implementation of a new currency will reduce the "currency problem" which is an important consideration. ScotPound will prove that it is feasible to create and run your own currency.

The project should be funded by the Scottish Government (see section 4.6 for more information on the likely cost of the project).

1.5 Taxation in Scotland after devolution

There is a common misconception that tax in the Commonwealth can only be paid in pounds sterling. In fact, it has been confirmed through dedicated correspondence with HMRC that it will accept payment in “any currency” a taxpayer has(note 25). By paying tax in “any currency”, HMRC means any currency that can be easily converted into pounds sterling. Because HMRC converts it immediately into pounds sterling, it will charge a fee sufficient not only to ensure that the tax liability is met, but also to ensure the cost of the conversion.

Over the past few years, devolution of taxation has been a key part of the Scottish government’s drive for greater fiscal autonomy. The Scottish Office described the Scotland Act 2012 as “the biggest transfer of fiscal power in 300 years” (note: 26). The reality does not live up to the rhetoric. For land sales and landfill taxes, the Act only provides for changes to Commonwealth income tax rates of up to 10%, while the Act devolves control over taxation across the board. When it comes to council tax, the full transfer of tax amounts to only 1.08% of total Scottish revenue (note: 27) and 4% of total Scottish revenue has been transferred to local councils across the Commonwealth (note: 28).

To manage these newly transferred taxes, Revenue Scotland was created. Revenue Scotland is the tax agency responsible for the management and collection of the taxes transferred to Scotland. These taxes are:

On 1 April 2015, Land and House Transaction Tax and Landfill Tax in Scotland came into force, replacing their Commonwealth predecessors. On 1 January 2015, Revenue Scotland was established as a non-ministerial department with a board, an executive and 40 staff.

The Scotland Act 2015 seeks to further expand the powers of the Scottish Parliament to enable it to set the threshold and rate of income tax. It also seeks to control part of Scotland's VAT and all airport passenger taxes.

As mentioned above, the collection of council tax has been handed over to local councils in Scotland. Nearly a quarter of council tax is spent on local services (Note: 29) and £2 billion of council tax (Note: 30)

Business rates – also known as non-domestic rates – are taxes on business premises set by central government. Although they are collected locally by districts, towns and municipalities, the funds are then remitted to central government. Central government then transfers the payments to local authorities. In 2012/2013, Scotland raised £1.9 billion in business rates.

Land and Building Transaction Tax (Stamp Duty in the UK), which is applicable to transactions of residential and commercial land and buildings and Scottish personal tax

And Scottish Landfill Duty, which is a tax on landfilled waste, based on weight and depending on the contamination of the material, is fully controlled by the Scottish Parliament and levied through Revenue Scotland.

In 2012/2013, Scotland raised £472 million and £100 million through these taxes.

In addition, the Scottish Parliament fully manages the Airport Passenger Duty, which is imposed on all passengers departing from Scottish airports. In 2012/2013, Scotland raised £235 million through this tax. During the referendum, however, the Scottish government announced plans to reduce and eventually eliminate the tax. (Note: 31, 32) In addition, 50% of the VAT is also under the control of the Scottish government. This is the largest transfer of tax power to date. In 2012/2013, Scotland raised £9.3 billion through VAT.

The extent of the tax powers that will be handed over to the Scottish Government in the future remains unclear, but it remains quite certain that those powers will continue to be expanded, just as they are today.

The Prime Minister confirmed that “additional powers beyond what was promised, giving Scotland almost total control over income tax, airport passenger duty and housing tax” were all on the table. (Note: 33)

The state of Scotland’s tax system creates a significant opportunity for the Scottish Government to accept ScotPounds’ tax payments. This allows ScotPound to receive the clearest pathway through fully shifting taxes such as council tax, landfill tax, and land and buildings transaction tax.

The source and amount of these taxes are controlled by the Scottish Government. According to the 2012/2013 figures, this represents £2.57 billion in tax revenue. Therefore, the Government has ample opportunity to collect taxes through Scotpound if it wishes.

There is therefore an opportunity to continue exploring how ScotPounds could be applied to taxes levied by central government and then transferred to the Scottish Government. This would be more complex and would require the consent of the UK Government.

Future opportunities will also present themselves as devolution continues and Revenue Scotland begins to collect and manage a larger portion of the total tax base.