THE SNP’s plan for Scotland to share a “sterling zone” with the rest of the UK after independence has been dealt a serious blow after one of the country’s leading bankers warned it is “perhaps fundamentally flawed”.
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In a damning analysis of the proposal for a pound-sharing pact after a Yes vote, Professor Brian Quinn, formerly a senior figure at the Bank of England, said the move would introduce “administrative complexity, confused governance and flawed decision-taking” into Scotland’s financial system.
First Minister Alex Salmond has proposed that, after a Yes vote, Scotland keeps the Bank of England in charge of monetary policy, while going its own way on policy and spending.
But in a paper published by the David Hume Institute today, Prof Quinn says that sharing power between two sovereign states in such a way would lead to a “muddle”. “Trying to stand astride two horses heading in diverging directions could lead, sooner or later, to an expensive accident,” he wrote.
Prof Quinn warns that, in the event of such an accident – like that which rocked Scotland’s banks in 2008 – there would be potential for serious “dispute” over who should bail them out: Scotland or the rest of the UK.
If a bank did go under again, he warns, Scotland’s taxpayers “could face real difficulty” in meeting their share of the costs.
He also argues that regulators in London would likely slap extra costs on Scottish-based banks to take account of higher risks. This could lead to Scottish financial institutions “to reconsider their group structures and group headquarters” and leave the country.
A Scot, Prof Quinn rose to deputy governor of the BoE in 1995 following a 13-year career there. He is now an honorary professor at Glasgow University.
Prof Quinn believes Scotland’s banks would have to meet higher standards to offset higher risks. “This could lead to cross-Border tensions and leave Scottish financial institutions to reconsider their group structures and headquarters,” he says.
Meanwhile, if the BoE was to take control of such functions for what would be two separate nations, Prof Quinn warns that “fundamental” problems would emerge over the governance of the system. “Public officials cannot serve two masters in areas that are crucial to the safety and security of the state without giving rise to real risks,” he writes.
A Scottish Government spokeswoman last night insisted that reforms in the Eurozone to allow the European Central Bank to oversee member states showed there could be a “co-ordinated and integrated system of financial supervision”.
She added: “Keeping the pound as part of a sterling zone is the common-sense position and one that Professor Quinn agrees would be ‘the preferred choice’.”
But Alistair Darling, chair of Better Together, said: “With someone of Brian Quinn’s standing and experience dismissing the SNP’s currency plan as ‘seriously, perhaps fundamentally flawed’, Alex Salmond cannot credibly continue to say that Scotland would keep the pound.”
A Scotland Office spokesman said: “His report catalogues the many currency and financial problems that would be waiting to greet an independent Scotland.”