AN INDEPENDENT Scotland would have four options when it comes to currency. It could continue to use the pound sterling, in co-operation with the UK government; it could adopt the pound sterling without the UK’s consent; it could adopt the euro, if that still exists; or it could establish its own currency.
The pound would – if Scotland secedes – probably remain the UK currency. Scotland could seek to join the remainder of the UK in a currency union, like Belgium and Luxembourg before the euro. That would provide for shared decision-making about monetary matters, and perhaps some aspects of economic policy. But it would need the agreement of the remaining UK state, and any decision about entry into the euro would be dominated by remaining UK concerns.
If Scotland were to adopt the pound without such agreement, it would forego a major element of the autonomy that usually comes with statehood. The pound can be expected to be managed and run by the UK government in its interests and under its control – so interest rate decisions, for example, would remain in the hands of the Bank of England, taking account of the English economy without regard to the Scottish.
Few states have used another’s currency for any length of time, and the experience has often been a sorry one. Argentina tied the peso to the US dollar at an excessive value – the main reason for Argentina’s economic collapse in the early 2000s.
Joining the euro directly would certainly require the agreement of the eurozone members at the time, and perhaps of all EU members. A close reading of the EU treaties suggests euro membership is not at present an automatic requirement of EU entry.
Creating a new currency would add to the disruption caused by independence. It would mean creating all the institutions needed to run a currency, including a central bank and a “full service” finance ministry.
There are no easy paths to running a currency as an independent state. It is one of the hardest choices to be made when it comes to independence.
• Alan Trench is honorary senior research fellow at the Constitution Unit, University College London.