During the Scottish referendum debate in 2014, there was significant discussion about monetary policy. While Scotland already issues its own banknotes, these are ultimately backed by the Bank of England. For Wales, issuing its own currency would be a new development, but independence would allow us to make the best choice for our own economic circumstances.

There are at least five possible currency options, each with advantages and disadvantages:

Keep the Pound in a Formal Currency Union

This option would cause minimal disruption but would mean retaining the Bank of England as the lender of last resort and allowing it to set interest rates. However, as it would require a fiscal union with England, it raises questions about whether Wales would be truly independent.

Keep the Pound (or Another Currency) as a Substitute Currency

Some nations use a foreign currency without being part of a formal currency union. For example:

• Montenegro and Kosovo use the euro without being in the EU or the eurozone.
• Some countries in Latin America, like Ecuador and El Salvador, use the US dollar.

Currently, no country uses the pound in this way, but Wales could adopt it as a substitute currency. This option avoids the need for a Welsh central bank, but it also means Wales would have no control over interest rates or monetary policy.

A Welsh Currency Pegged to the Pound (or Another Currency)

Wales could create its own currency, pegged at a fixed exchange rate (e.g., 1:1 with the pound). This approach:

• Maintains price stability with the UK.
• Allows Wales to issue its own coins and banknotes.
• Keeps the pound as legal tender alongside a Welsh currency.

However, this system would mean that Welsh monetary policy is still influenced by the currency it is pegged to, rather than the specific needs of Wales.

This is similar to what Ireland did for decades, pegging the Irish punt to sterling before allowing it to float freely, and eventually transitioning to the euro.

A Welsh Currency with Its Own Exchange Rate

This option would grant Wales complete control over monetary policy, including:

• Setting interest rates.
• Managing inflation.
• Adjusting money supply.

While more complex to implement, the benefits of monetary sovereignty are significant. Wales would no longer be restricted by policies set in London and could respond to its own economic needs.

In the short term, to avoid major fluctuations, Wales could initially peg its currency to an established one, such as the pound or the euro.

Switzerland, though linked to the European Single Market, maintains the Swiss franc. Until 2015, it pegged its currency to the euro to avoid excessive fluctuations. Wales could take a similar approach, preventing an overheated currency.

Join the Euro

If Wales were to join the EU, adopting the euro would be an option. However, this would involve:

• Creating a temporary Welsh currency.
• Meeting public spending and debt criteria.
• Participating in the European Exchange Rate Mechanism (ERM II) for at least two years before adopting the euro.

Joining the euro could:

• Boost trade with the EU.
• Increase foreign investment and tourism.
• Provide stability as part of a larger monetary union.

However, it might also mean:

• Loss of independent monetary policy.
• Becoming part of a European fiscal union.
• Stoking political divisions similar to those around the 2016 EU referendum debate.

The Key Point: Wales Has Options

The right choice should be based on what works best for the Welsh economy. There is no reason to fear-monger about being forced into one option or another. Independence means having the freedom to decide.

Ultimately, the question is not whether Wales can have its own currency, but which option would best serve Wales’ economic future.