Mr. Osborne, meet Mr. Calomiris

The Scots and the English have re-opened an old wound;

[Chancellor of the Exchequer] George Osborne has categorically ruled out any future UK government joining a currency union with an independent Scotland, leaving Alex Salmond's plans to share the pound in tatters.

The Chancellor used a speech in Edinburgh to say: "If Scotland walks away from the UK, it walks away from the pound."

Dealing with the First Minister's claims that Scotland can share sterling with the UK despite separation, Mr Osborne said that "people need to know that is not going to happen".

He outlined the four criteria that would be needed to make a currency union work, based on analysis published today by the Treasury, and said neither the Scottish or British public would accept the reality of such an arrangement.

If that's supposed to frighten the Scots, let's hear from Columbia economist Charles Calomiris, The Political Foundations of Scarce and Unstable Credit (FRB Atlanta, April 2013);

In sharp contrast to England, by the middle of the 18th century Scotland had developed a highly competitive and innovative banking system, and enjoyed abundant credit and stable banks, which provided credit to all sectors of the economy through wide-reaching networks of branching banks. From 1694 through 1825, while England’s banking system consisted of the Bank of England and the small country banks and goldsmith banks that operated on a small scale and under restrictive regulation, a completely different sort of banking system operated nearby in Scotland. The Scottish system, in sharp contrast to the English one, was the very model of competition, innovation, accessibility of credit for the private sector, and stability. In all of those respects, Scotland’s system was a constant reminder to its neighbors in England of what a banking system could be, and what the English banking system was not. The comparison was all the more galling to the English considering how relatively backward the Scots had been at the turn of the 18th century. 

Thanks in large part to its banking system, Scottish backwardness did not persist. Not only was Scotland at the heart of the British Enlightenment, it became central to the Atlantic trade between Britain and its colonies. Scottish manufacturing, husbandry, fisheries, and agriculture also thrived. Scotland’s competitive system of banks, many of which operated networks of branches throughout the country, contributed to this success story by providing broad access to credit. 

Iow, the Scots have done well enough alone, before. This reminds us that Mr. Calomiris has a book about to be published; Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Which will be reviewed by HSIB, when it is.