‘Wales could be a prosperous country if it had its own currency’

Warren Mosler at the Tramshed in Cardiff

Martin Shipton

Wales could become a more prosperous nation by ditching the pound and creating its own currency, according to a monetary guru whose anti-establishment ideas are challenging economic orthodoxy.

Warren Mosler had a highly successful career in the US financial sector, founding his own hedge fund and owning his own bank, before embarking on a mission to convince the world that mainstream economics is based on a fundamental misunderstanding of the way money is created – and that once that’s understood, public spending can be used to create full employment.

On Friday August 29 he gave a lecture at Tramshed Tech in Cardiff that was attended by former Plaid Cymru leader Leanne Wood and Mark Hooper, Plaid’s lead Senedd candidate in the new super-constituency of Pen-y-Bont Bro Morgannwg, which covers Bridgend and the Vale of Glamorgan.

The gold standard

Mr Mosler’s starting point is that since the gold standard was abolished during the Great Depression of the 1930s – before which the value of a country’s currency was linked to the amount of gold it possessed – money has essentially been created by governments. Contrary to popular belief, banks do not lend to borrowers the money deposited with them by their customers. Instead, the money they lend is created by banks simply by creating credit in a borrower’s bank account.

The same can be done to ensure the economy is working for people, rather than people working for the economy. Both at the time of the banking sector crash in 2008 and the Covid-19 crisis in 2020, banks injected billions of pounds into the economy to ensure its survival. There is no reason why that couldn’t be done in the interests of social improvement.

When that is understood, argues Mr Mosler, there is no reason for a country to punish itself by cutting public spending to “balance the books”. A country’s independence is determined by its ability to act freely economically. Being linked to the British pound would not provide such freedom because crucial decisions would be taken by the central bank – the Bank of England – over which Wales has no control.

Independent Wales

Asked by Nation.Cymru what advice he would give to those arguing for an independent Wales in terms of the currency issue, Mr Mosler said: “The first thing that comes to mind is that 30 years ago, this was the same question in Quebec, Canada. The people there knew me, and I wrote a paper on how they could have their own currency and how it would work. They would go to an immediate prosperity and it would be a strong currency. My ideas got published in the French separatist newspaper, two pages in the centre section. But they lost the referendum in 1995 [by 50.58% to 49.42%]. It was very close. So I’m not new to this.

“I wrote a paper for Scotland on how to start an independent currency, and from a purely economic prosperity point of view, you would want to have your own currency. Not that there aren’t things you can do as halfway measures. But you’re far better off starting your own currency, because the UK doesn’t operate their currency properly. They don’t operate it for a public purpose, the way it could be operated.

“If they were doing it properly, we wouldn’t be having this discussion. You would be more than happy to be a member of the UK and you’d be at full employment, with prosperity. Life would be nice. The streets would be clean, the schools would be excellent, education would be good, and, you know, the air would be clean and the public health service would be fully funded. You’d be at full employment all the time. That’s the natural state of an economy with a government that knows how to operate their currency.”

Deficit

Asked how he responded to the often mooted argument that Wales couldn’t afford to operate independently of England and would instantly have a huge deficit, Mr Mosler said: ”Well, the first thing you say is why does it matter? The US has run a huge trade deficit. It’s the strongest growth country in the world, with the highest standard of living.

“Once you have control of your economy, whatever deficit you’ve assigned to Wales, it’s gone. We’re going to wipe that out and you’ll never have that again.

“We’ll take care of our own finances. OK, now you can tax and spend. You’ll have your own interest rate in your own punt or whatever you want to call it, and you can have a proper zero rate policy.

“You can have a properly funded public sector. You’ll be running some kind of a residual deficit. It might be 2% of GDP, it might be 10%. You don’t even have to publish a number. It doesn’t matter. You’ll have a far higher level of price stability than the United Kingdom. Nobody can ever have perfect price stability.

“You’ve got a crop failure. Food prices are going to go up. Somebody strikes oil. The oil price is going to go down, up and down. You’re going to have relative value changes all the time, but you’re going to have an inherent level of price stability and the ability to cope with it far better than the UK.”

Unsurprisingly, Mr Mosler is scathing about the way Chancellor Rachel Reeves is running the economy. He said: “You would have full employment if the government were doing its job properly. Yes. Whereas, you know, Rachel Reeves is saying, well, we’ve got to screw people because we’ve got to get more money. So they’re thinking up new ways of taxing people in order to get more revenue. It’s totally unnecessary.”

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