It’s also unnecessary. Given that exchange rates are largely set by relative productivity rates after hot money flows are taken out of account
Err, no. They’re – largely – set by differences in inflation rates/interest rates, those two being rather intimately combined. The FX rate is a monetary phenomenon, thus influenced by monetary factors.
We can indeed look at the real exchange rate and productivity, but not really the nominal.
And last, there is the rather odd assumption that the Scottish people would not be willing to lend their own government money after independence. As in the rest of the UK there are substantial savings owned by Scottish people. My research has shown that maybe 80% of UK savings are tax driven as to their location. This is likely to be true in Scotland, therefore. If the Scottish government decided that it wished to change tax incentives in ISAs, pensions and its own range of savings accounts to encourage people to save with it then that would very likely be successful in raising significant funds for it. The dependence on foreign money markets could be eliminated.
Better still, my solution puts Scottish savings to work, when at present few of those savings will actually fulfil any useful function within the economy. Much will be lying dormant in bank accounts earning almost nothing. And by Saving for Scotland what people will also do is provide the capital for the solid foundation of their new state – and in the process help build it for the generations to come. As a move towards national solidarity little could work better.
And that hot money he talks about is oft referred to, more correctly, as portfolio investment, which is exactly what those savings he’s talking about are. So, we’re to solve that FX problem of portfolio investment by portfolio investment. Hmm….