One of the fundamental issues agreed by leading economists to weaken the case for Scottish independence of the United Kingdom is that the size of the Scottish economy would not be well placed to weather unforeseen economic shocks.
Had the country voted for indy in September 2014, Scotland would today, 7th January 2016, be looking not just at a North Sea oil and gas sector on the way to bottoming out for some time – but at the potentially imminent arrival of another economic shock of a scale capable of shaking world markets.
European shares fell 3% today after trading was suspended on the Chinese markets after only half an hour’s trading – its shortest trading day ever. The closure was triggered on a threshold set by a safety device known as ‘the circuit breaker’ to prevent panic selling. This was activated when shares in China fell by 7%.
After 15 minutes of trading, shares fell by 5% triggering a temporary shut down . When the markets reopened, share fell to 7%, troggering a full day stoppage. To date, the China markets have been open on only half of the days in 2016, and today’s is the second stoppage this week.
Reuters report that: ‘China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared the Asian giant could trigger competitive devaluations from its peers.’
‘The People’s Bank of China again surprised markets by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), 0.5 percent weaker at 6.5646 per dollar, the lowest since March 2011.
‘But the central bank’s fixings have helped drive the yuan down not just against the dollar this week, but also other major currencies, including a 3.5% fall against the yen and 0.8 percent against the euro.
‘That raised concerns that China might be aiming for a competitive devaluation to help its struggling exporters.;’
Sim Moh Siong, FX strategist for Bank of Singapore, is quoted as saying that the situation is ‘a zero sum game’, with other currencies weakened in consequence. The market fears that the end result would be greater volatility.’
Former Goldman Sachs guru, Gavyn Davies, who, with with his wife Sue, is owner of the Machrie House Hotel and Golf Links on Islay, wrote yesterday: ‘Since the dawn of the new year, however, investors have become much more concerned that a larger devaluation may be in the works, either through the choice of the Chinese authorities, or because the outflow of private capital is getting out of hand. Some bears in the currency markets believe that China could soon be suffering from a genuine exchange rate crisis, in which its enormous foreign exchange reserves could be quickly drained.
‘That would indeed be a severe shock to global markets, since it would effectively export the deflationary forces that are overpowering the Chinese manufacturing sector to the rest of the world, and would probably require direct measures to restore the health of the Chinese financial system. But it still seems unlikely to happen, for now at least.‘