With ballots even now being counted out, if Scotland votes YES to independence, the road ahead will be rocky. What are the ramifications for Scotland and the rest of the UK’s economies if the answer is ‘YES’?
September 19, 2014 | Carol WheatcroftThe answer is that nobody really knows as the YES campaign has not addressed the fundamental currency question.
Their stated position is that they wish to have a currency union with the rest of the UK (England, Wales, and Northern Ireland), retaining the pound and by implication remain bound by the Bank of England’s decisions about interest rates. They argue that it is in the interest of the UK government to agree to this arrangement given the high degree of trade, jobs and company operations that flow across the border. They argue that this would be in the UK’s interest too.
In response the central UK government in Westminster has categorically stated that it will not enter a monetary union with an independent Scotland. (Note: UK is a country that has been unwilling to adopt the euro and enter a monetary union with Europe.) They argue that the UK has been one of the most successful political, fiscal and monetary unions in history and the success comes from the co-ordination of economic policies that allow the risks to be shared across the borders, and this success would be difficult to maintain if Scotland gains independence and introduces different economic policies.
Furthermore it would be unfair to the rest of the UK if the Bank of England offers guarantees to an independent Scotland as the relative size of Scotland would mean that although UK taxpayers could likely be able to support a failing Scottish bank due to their larger numbers, a significantly smaller number of Scottish taxpayers would be unlikely to be able to reciprocate.
The UK government also questions the long-term commitment of an independent Scottish government to a currency union as the YES campaign’s white paper “Scotland’s Future” states that Scotland could choose a different arrangement in the future.
The two positions are clearly very different. A post independent Scottish government envisages a Scotla...
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Operational Risk, Risk and RegulationKeywords:Scotland, England, UK, Eurozone, Market Risk
