On 18 September 2014, Scotland will vote in a referendum on whether it should become independent from the rest of the UK. A key question: what currency would an independent Scotland (iScotland) use, and what are the implications? The pro-independence campaign (the ‘yes’ campaign) favour retaining Pound Sterling, with a formal currency union between iScotland and the remainder of the UK (rUK). This blog examines the options on currency and summarises the implications.Currency union. The scope of any currency union would be negotiated between iScotland and the rUK, but both states would continue to use the pound and continue to rely on the Bank of England as a lender of last resort. This option offers advantages to both iScotland and to the rUK — in particular, by minimising transaction costs. An iScotland would have influence on the central bank’s monetary policy, likely proportional to iScotland’s economy. Most commentators accept that a currency union requires a compact between participating states thereby ceding national control over fiscal policy. For example, Eurozone Members subscribe to the Stability and Growth Pact. In the view of Mark Carney, the Governor of the Bank of England, an iScotland/rUK currency union would need to “go further” than the Eurozone pact,… Read full this story
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