Scottish independence: Economist criticises currency union rejection

Sterling coins and notes The finance spokesmen of Conservatives, Labour and Liberal Democrats have all said they would not agree to a currency union with an independent Scotland

The Scottish government has welcomed a new economic analysis which strongly attacks the UK Treasury's opposition to a currency alliance.

Leslie Young, professor of economics at a university in Beijing, claims the Treasury's position does not stand up to scrutiny.

He was commissioned by businessman Sir Tom Hunter's new institute to assess the case against a currency union between an independent Scotland and the rest of the UK.

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There may be good reasons for the UK to reject a currency union with an independent Scotland, but none can be found in the Treasury letter”

End Quote Prof Leslie Young Cheung Kong Graduate School of Business

Sir Tom is funding academic reports, research and polling in a bid to help people better understand the issues in the referendum, while he says he remains undecided on his vote.

This academic paper is a fierce denunciation of the Treasury's reasons for opposing a currency union.

However, in response to the piece of work a spokesman for the Treasury reiterated the UK government's stance that a currency union "is not going to happen".

The Scottish government wants such an alliance, but the Chancellor, George Osborne, as well as the Lib Dem Treasury Secretary Danny Alexander and Labour's Shadow Chancellor Ed Balls have all agreed that their parties would not agree to such a deal.

Mr Osborne cited Treasury analysis which, unusually, was backed up by publication of a memo to ministers from the Treasury's top official, Sir Nick Macpherson, saying he would not recommend a Westminster government to enter a monetary union with Holyrood.

Scottish ministers have said the Chancellor's position is wrong, and should not be believed, and that a "Yes" vote would be followed by an agreement on currency.

The new contribution to the debate from Prof Young argues the Treasury has not made clear why it believes the currency union would not be in the interests of the rest of the UK, if Scotland votes for independence.

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The UK government has set out detailed analysis supported by numerous independent voices as to why a currency union is not in the interests of an independent Scotland or the remaining UK”

End Quote UK Treasury spokesman

It attacks the parallels drawn by Sir Nick Macpherson with the recent crisis in the Eurozone countries, arguing Scotland and the rest of the UK are no parallel with the differences between Germany and Greece.

Prof Young, of the Cheung Kong Graduate School of Business in Beijing, also casts doubt on claims that banks in an independent Scotland would pose too great a risk for the rest of the UK, or that Holyrood's budget would diverge from Westminster, and put intolerable pressure on the alliance.

He argues that, even if a currency alliance were formed, there would be pressure for banks to re-locate to the rest of the UK.

The professor argues: "There may be good reasons for the UK to reject a currency union with an independent Scotland, but none can be found in the Treasury letter. Yet that letter is the key justification for the stance of the UK government."

A spokesman for First Minister Alex Salmond welcomed Professor Young's report, saying it "totally demolishes" the Whitehall analysis, which it says plays on fear and has failed to capture the benefits of formal monetary union.

The alliance of Conservative and Labour on this issue "has been losing the political argument - now they're losing the fiscal argument too," said a spokesman for First Minister Alex Salmond.

A Treasury spokesman commented: "A currency union is not going to happen. The UK government has set out detailed analysis supported by numerous independent voices as to why a currency union is not in the interests of an independent Scotland or the remaining UK.

"This decision is not going to change. This means less than six months from the referendum, the Scottish government still has no plan for what currency they would use".

Voters in Scotland will be asked the yes/no question: "Should Scotland be an independent country?" when the independence referendum is held on 18 September.

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