Nicola Sturgeon’s plan to keep using the British pound as a currency under independence is “a hugely risky experiment for Scotland”, according to leading international economists.
The SNP strategy to continue to use the pound outside of the UK sterling currency zone has been condemned in a report for the pro-UK organisation These Islands.
The group, founded by economics blogger Kevin Hague, commissioned some of the world’s leading economists and monetary experts to look at the idea of an independent Scotland continuing to use the Bank of England issued currency.
Their report warns no other country has managed to successfully use a parallel currency and that given the deficits in Scotland's budget a newly independent state would need to go to the IMF for a bail-out.
There is an ongoing debate within the SNP on what currency an independent Scotland would use. The idea of a monetary union with the rest of the UK was rejected by the Conservative government in the run up to the 2014 referendum.
The SNP Sustainable Growth Commission blueprint for independence in 2018 suggested Scotland would use the pound but outside of a formal monetary union with the remaining UK. Others argue for a new currency or adopting the Euro if Scotland rejoined the European Union.
The experts spoken to in the These Islands report issued a series of stark warnings on the dangers an independent Scotland would face after leaving the UK’s sterling currency zone.
- Dame DeAnne Julius, a founding member of the Bank of England’s Monetary Policy Committee, said the parallel currency plan has never worked anywhere in the world. She said: “It’s impossible, I think, to find any place that is a success story undertaking this route of political independence using a currency issued by another country.”
- Professor Cédric Tille, member of the Bank Council of the Swiss National Bank, warned that a Scottish state using sterling currency could find itself seeking a financial bailout from the International Monetary Fund (IMF). Tille said: “Looking at the massive Scottish fiscal and current account deficits, my advice to the new prime minister, should the country split off, would be to address these structural challenges or develop good links with the IMF, because she or he might well need their assistance in the future ”
- Harvard University economist Professor Jeffrey Frankel, who served on the US President’s Council of Economic Advisers during the Clinton administration, said: “I think Scotland would have to undergo a profound change and would probably have to make some difficult economic adjustments.”
- St Andrews University’s Professor Alan Sutherland warned that sterlingisation would have serious impacts on the Scottish banking system. He said: “Some borrowers will just not get mortgages anymore, some businesses will not get loans, rates of interest will be much higher,” he said.
Commenting on the report, Hague, chairman at These Islands, said: “These warnings come from some of the world’s most respected macroeconomics and currency experts, and should be a wake-up call to anyone inclined to believe the argument that leaving the UK’s currency area can be achieved at no risk.”
SNP Depute Leader Keith Brown said: “Scotland will continue to use the pound at the point of independence, establishing an independent Scottish currency as soon as practicable through a careful, managed and responsible transition when an independent Scottish parliament chooses to do so.”
He added: “Scotland is a prosperous and successful nation but we can do so much more by matching the success of other similar-sized advanced independent countries which enjoy control of their own economic policy.”
