In the face of a looming referendum that could see Scotland proclaim its independence from the UK, politicians have begun fielding questions on the issue of the country’s currency.
If Scotland gains independence, they will have to choose whether or not to continue using the British pound – the currency used throughout the United Kingdom. Other options could see Scotland joining the euro or launching its own currency.
Scottish National Party (SNP) leader Alex Salmond said the most likely scenario would see Scotland retaining the pound temporarily.
“This would allow Scotland to control taxes, spending and borrowing while the Bank of England would continue to set monetary policy,” Reuters reported this week.
However, supporters of Scotland’s quest for independence aren’t all sold on the idea of retaining ties to the Bank of England.
“The answer to the currency question goes to the heart of what independence really means, because the lesson from the eurozone crisis is that sharing a currency means compromising, co-ordinating and losing independence, rather than gaining it,” wrote Douglas Fraser, BBC News Business and Economy Editor in Scotland.
Still, the most likely scenario proposed by the SNP is that Scotland would hang on to the British pound until they could join the euro. Doing this poses several challenges, according to Andrew Hughes Hallett, professor of economics at St Andrews University.
First, Scotland would have to go through the process of joining the Eurozone and ensuring that the Scottish currency (the pound) maintained a degree of stability against the euro for the last two year.
“How to maintain a stable relationship with the euro when you don’t have your own currency and when the inherited currency does not have a stable relationship with the euro. This would be messy,” wrote Hallet.
The least likely scenario seems to be that Scotland would launch its own currency should independence occur, as the country “has no gold or foreign exchange reserves,” said economists.