In an independent Wales, a Welsh Central Bank must play an active role in a wellbeing economy

William Thomson and Warren Mosler

An opportunity exists to create a central bank that reflects Wales’s unique economic landscape.

We believe a Welsh Central Bank (WCB) in an independent Wales should be central to a framework for implementing a wellbeing economy.

We propose a democratic institution focused on full employment, reducing income and wealth inequality, directing resources to the real economy, and supporting an economy and society that operate within planetary boundaries.

In our recent policy paper, “A Scottish Central Bank for an independent Scotland”, in which we proposed a very different central bank for Scotland, we also had Wales in mind.

In 2025, we met with policymakers in Wales and wrote articles for Nation.Cymru. It is very much the case that what is good for Scotland’s wellbeing economy is essential for Wales.

If a wellbeing economy were the destination for an independent Wales, the central bank would have at least one foot on the pedal.

A new Wales would need a new central bank, but would mirroring the Bank of England steer Wales towards a wellbeing economy?

The answer is clearly not. In fact, few issues unite so many monetary economists as dissatisfaction with how central banks, including the Bank of England (BoE), operate. Their large balance sheets (swollen by quantitative easing – swapping central bank liabilities like reserve balances and government bonds with commercial debt) have given them a larger footprint in the economy than anyone ever imagined.

To give an idea of the ‘new normal’, from 2008 to the end of 2014, the US Federal Reserve’s balance sheet grew from $900 billion to $4.5 trillion. The BoE’s grew from £98 billion to £407 billion.

Interest payments on the balances commercial banks hold at the central bank have also ballooned. In 2025, the BoE paid £25bn in interest. A decade earlier, the figure was under £2bn. This is a choice that the UK Government and its central bank are making.

There is an alternative. The Swiss National Bank operates a tiered system in which reserves above a specified threshold receive a rate below the policy rate. Sweden’s Riksbank pays no interest at all on a proportion of deposits held at the central bank. This is the direction of travel for small European nations.

Finally, there is what many consider the most significant problem: an increasingly blurred boundary between monetary and fiscal functions, as technocrats decide some of the most political issues, including redistribution and the level of unemployment.

We suggest that replicating these conditions would significantly disrupt progress towards a wellbeing economy that aims to reduce income inequality, direct resources to the real economy and be led by democratic institutions.

A new Welsh Central Bank for a new Wales

We started with a blank sheet of paper, a luxury Wales will have when it is independent. We advocate a limited, small-balance-sheet model that relies on neither bond markets nor asset purchases, resolving many of the institutional tensions that plague the BoE and other central banks. In one sense, we offer a ‘less is more’ answer to an orthodox and heterodox economic puzzle.

Some commentators on Nation.Cymru have argued that Wales should not only seek to copy the institutional design of the UK’s core financial institutions but should also keep the Bank of England as Wales’s central bank for an extended period. This is the template grabbed from the SNP in Holyrood.

Given the concerns expressed by orthodox and heterodox economists and central bankers about current arrangements, this would likely strike the reader as a bizarre starting premise for a new central bank. Given the opportunity, no central banker would design a new bank based on the status quo, especially when considering how to construct the very different economic system of a wellbeing economy.

There is an opportunity to create a central bank that reflects Wales’s unique economic landscape. That is the challenge we set ourselves.

Currency and the central bank

Central to our argument is that, in a modern monetary economy, you cannot disentangle the creation of a central bank from the issuance of a sovereign fiat currency. One is not possible without the other. You could have an organisation called a Welsh Central Bank, but operationally, you can launch a WCB only by creating a Welsh currency.

Within three years of a vote for independence, a WCB could be fully operational and overseeing a fiat currency issued by the Welsh Government. This is certainly an accelerated timetable compared with those proposed by other commentators, but we believe it is realistic.

What would a Welsh central bank do?

Our proposal is for a Welsh Central Bank that operates on the general understanding that a central bank issues a fiat currency, issues notes and coins, oversees the payment system, sets the base interest rate, oversees or is directly involved in regulating the financial sector and, crucially, acts as the lender of last resort.

This is the traditional role of a central bank; however, our design does not cling to an outdated understanding of monetary operations and institutions. It sets out a WCB that actively supports a wellbeing economy.

A Welsh Central Bank for a wellbeing economy

A Welsh Central Bank would have a minimal balance sheet. It would not use the unemployed as a buffer for price stability – the policy framework that dominates central banks at the moment – or make large, regressive interest payments on government liabilities.

It would provide unlimited but strongly regulated liquidity, would not use fiscal space for foreign reserve accumulation, and would place full employment at the heart of its mandate. It would also provide full bank deposit insurance and would not constrain its operations with capital targets.

If central banks are indeed the ‘only game in town’ in today’s modern economy, they do not need to be built on an orthodox understanding of monetary operations. For Wales, independence is a unique opportunity for an institutional reset.

Rather than inheriting UK financial structures and monetary policy functions, Wales can instead design a central bank that supports full employment, price stability and resilience, aligned with the concept of a wellbeing economy. Our policy paper would be a foundational piece of that puzzle.

William Thomson and Warren Mosler’s policy paper, A Scottish Central Bank for an independent Scotland: A review of the Scottish Government’s current proposal and an outline of a wellbeing economy alternative, provides a useful framework for a central bank in an independent Wales.

William Thomson worked for almost a decade in the financial services sector in London, holding positions at the British Bankers’ Association and the Council of Mortgage Lenders. William has an MA (Hons), an MSc in the Green Economy and an MEcon in Economics of Sustainability. He is the founder of Scotland’s Economics Festival and the think-and-do tank Resilient Economy.

Warren Mosler has worked in banking and financial markets for over fifty years. Warren founded Modern Monetary Theory (MMT), a new school of economics that grew out of his practical understanding of how central banks, governments and commercial banks operate. He has written extensively on central banking, government finance, monetary systems and how independent fiat currencies operate.

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