By Dr. Paula Wylie
Faculty Member, International Relations at American Public University
For European travelers on summer holidays, the news proved shocking: “Though it seemed that the maximum rates that could be demanded for foreign exchange had been touched in the frenzied markets of previous days, new extremes were reached yesterday… ” The foreign visitors caught short by exorbitant currency exchanges were not at the recent Tour de France or Wimbledon; this news affected vacationers in 1914, on the eve of war. When the British declared war on Germany on August 4, Parliament immediately removed gold from circulation – and in a strange turn of circumstance, Scottish and Irish paper notes became legal tender.
After the war, the British pound replaced the Scottish and Irish notes. From 1920, the Scots carried only British pound sterling in their pockets. Twenty-six of the Irish counties achieved nominal independence in 1922 and later established a currency. Six of the northern counties remained within the United Kingdom (Britain) and became Northern Ireland. By 1949, the Republic of Ireland was independent but more than 80 percent of its trade was British. Its currency was set on a par value with the pound sterling.
Although this ad hoc currency system in the UK was not discriminatory, something had to ease the pain of the Scottish, Welsh, or Irish nationalist reaching in his or her pocket only to find a British pound. The treasury began minting coins that depicted national symbols – an image of a thistle for the Scots; a Celtic cross for Northern Ireland; and a leek for the Welsh.
From 1922 until 2002, the system worked well within the UK. For consumers in Western Europe or business travelers, currency exchange was complicated. A family in Germany traveling by car to Ireland might have five currencies – German deutschmarks, Dutch guilders, French francs, British pounds, and Irish punts.Each time a mark traded for a pound or a gilder for a franc, the consumer paid a fee. One of the more appealing aspects of the European Union (EU) was the streamlining of exchanges among people, goods, and services – including currency.
As the fledgling EU monetary system took hold and its new currency (the euro) entered into circulation in 2002, currency exchanges diminished. At the same time, national identity issues gained momentum. In its quest for full independence, Scotland used democratic tools, first with the success of the 1997 devolution referendum driven primarily by the Labour Party’s Tony Blair and, two years later, with its own Scottish National Parliament. “Devolution” is a legal term for transferring power to a lower level, but is considered a path to independence under the British system.
Under Blair’s leadership, devolution in Britain took wing. Not only was the decades-long and violent Northern Ireland crisis mollified (1998 Good Friday Agreement), but Scotland made exceptional progress toward independent governance. Scotland is set to hold a referendum for full independence on Sept. 18, 2014. Among the many questions of what life without the British might reveal, the “pound in the pocket” question is prominent. Should Scotland have its own currency, join the euro, or retain the British pound? Given that about two-thirds of its trade is with the UK, it makes sense to enter into some form of currency union as Ireland did in the 1920s. But Scotland has something Ireland never had – North Sea oil – and a ready-made international market. Until the Scottish outcome, what happens next is traditional “wait-and-see-pudding.”
About the Author
Paula L. Wylie, Ph.D. is a faculty member in the International Relations program at American Public University. She completed her M.A. in International Relations with Boston University and a Ph.D. in Diplomatic History from the National University of Ireland, University College Cork. Dr. Wylie has been teaching and writing in the fields of foreign policy, international law and diplomacy since 1995.
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