Save the pound - denationalise it

Even for the political obsessive, the 2001 general election is a forgettable blur.  In case you need reminding, William Hague banged on about ‘Saving the Pound’… and lost by a landslide. 

But while the result may be forgettable, if history is fair, it won’t forget the sacrifice that Hague made to keep Britain out of the Euro.

Yet for all politicians’ efforts to save the pound as an institution, they’ve done little to save its value.  Central banks’ loose monetary policy has supported profligate governments, encouraged astronomical debts, and caused rampant inflation.  As Conservative MP Douglas Carswell notes, in the past twenty years, the value of £1 has halved. 

Instead of fighting to save the pound, there’s only fifty pence left to save.

Of course, it could all be so much worse.  Sitting on my mantelpiece is a 1980 Zimbabwean dollar – a shiny coin similar to a fifty pence – framed next to a Zimbabwean banknote of 2008 vintage: a 100,000,000,000,000 dollar banknote.  Yes, a hundred trillion of them – and when it was launched, it was worth just US$30.

In 2009, Zimbabwean inflation was running at a million million million million per cent (which is somehow only the second-highest in history).  On top of that trifling matter, the economy was trashed and trust in the fragile political settlement was limited.  The new government of national unity knew that it could do little to restore confidence in the poor Zimbabwean dollar.  So it did the natural thing: it scrapped it.

The US dollars and South African rands that had been used by all that could get their hands on them suddenly became legitimate currencies for businesses to use.  With that, inflation fell precipitously, and a semblance of economic wellbeing has been restored to Zimbabwe.  As a final humiliation for Britain, Zimbabwe’s inflation is now lower than the UK’s.

Concerned by the erosion of thrifty Britons’ life savings, Douglas Carswell has introduced a Ten Minute Rule bill along the same lines.  Don’t worry – he doesn’t want to scrap the pound; in 2001, Carswell was the Tory candidate that took the fight to Save the Pound to Tony Blair’s Sedgefield constituency.  But he does want to subject the pound to the most Conservative of solutions to failing public institutions: competition.

Other currencies would compete with the pound.  Think that’s far-fetched for Britain?  Think again.  The wealthy don’t want their asset depreciated by five per cent a year, and have long kept their assets out of pounds and in harder currencies.  That’s real competition in currencies, and it’s had staggering results: just witness the amazing rise of gold and Swiss francs.

The status quo is fine for the rich, but that route isn’t available to most people.  Sterling’s status as sole legal tender – under the Currency and Bank Note Act 1954 – makes it impossible for every-day contracts to be performed in anything else.  Even when the Bank of England is printing billions of pounds and eroding their savings, most people have no choice but to grin and bear it.

Carswell’s bill would fix that by making a basket of international currencies legal tender, too.  As in Zimbabwe – where the US dollar ousted the Zimbabwean one – or Weimar Germany – where cigarettes were a more dependable currency than the Mark –good currencies would chase out the bad. 

Governments that printed too much money would find it in very limited demand, and so all governments would have to keep a hold on inflation.  That new-found discipline would thus save both the pound and its value.

The idea of competing currencies is most closely associated with Friedrich Hayek.  Hayek wrote a monograph for the Institute of Economic Affairs in 1976, titled ‘Denationalisation of Money’.  In it, he suggests that western democracies agree to mutually recognise one another’s currencies as legal tender: allowing individuals to decide which currency they’d use.  As Steve Baker MP has noted, that was the UK government’s proposed alternative to the Euro in 1989.

So with that pedigree, will Carswell’s plan be adopted?  Probably not just yet – Ten Minute Rule bills virtually never are.  However, as Hayek noted in the second edition of his monograph, the job of the economic theorist is not to succeed today, but to make possible tomorrow what is impossible today.

In pursuing the cause regardless, Carswell, Baker, and others are introducing ideas that deserve to be debated, but that have been glossed over or passed over.  Sadly, until they succeed, Britain will become poorer: and the pound that Conservatives sacrificed an election to save will be worth less and less every day.

Oliver Cooper is a Conservative activist and member of the Progressive Conservatives. He tweets at @OliverCooper