Scottish independence: Economists offer rival viewpoints on currency issue

Pound coins

Currency has continued to dominate the independence debate with economists offering differing viewpoints.

Former UK government adviser Sir Donald Mackay said there was "nothing to stop" an independent Scotland using sterling without a currency union.

The Bank of England, meanwhile, issued a clarification following comments from Finance Secretary John Swinney.

It insisted it had not held discussions with the Scottish government about future monetary arrangements.

The Scottish government favours a formal currency union with the rest of the UK with the Bank of England as the central bank - but the main Westminster parties have said they would rule this out.

Sir Donald Mackay, who was an economic adviser to the secretary of state for Scotland, told BBC Radio's Good Morning Scotland programme that Scotland should continue to use sterling if voters backed independence in the referendum next month.

'Irish model'

"I would prefer that within a formal currency union because I think that would be in the interests of all of the UK, not simply Scotland," he said.

"If you couldn't do that, you'd follow the Irish model, that is, you'd simply shadow the pound.

"You would keep parity - you would use sterling. Sterling is an internationally traded currency. There's nothing to stop you using it if you want to."

Asked what Scotland's options would be if the UK government would not do a deal, Sir Donald said: "You would create a currency board, I suspect, which is what the Irish did, and eventually you would develop your own central bank."

When the Irish state first gained independence from the UK, it continued to use sterling for seven years, followed by its own currency, which it pegged to sterling for half a century.

'Cyclical' economy

However another economist, Ewen Stewart, told the same programme: "It's overwhelmingly in Scotland's interests to use sterling. Seventy percent of Scottish trade goes to the rest of the United Kingdom."

He added: "The major political parties in England have said that isn't an option and, to be honest, if you're going to separate, you can't expect to keep the good bits."

Mr Stewart, who opposes independence, has written a paper for the Scottish Research Society - which has registered as a backer of the No campaign.

He argues that if Scotland rejoined the EU and had to comply with its compulsory annual borrowing limit, every household in Scotland would be worse off by £3,400-£5,500 a year, plus another £500-£1,000 a year for every £100,000 borrowed on their mortgage.

"You could shadow the pound, there's little doubt about that, and that is seductive as an argument and it may well work for a period of time, until it doesn't," he claimed.

"The problem is that the Scottish economy is actually highly cyclical.

"It's dependant on three big sectors: the public sector, just over half the entire economy; oil, we've all agreed, is highly volatile; and the banking sector."

The Bank of England later issued a statement on comments made by Scottish Finance Secretary John Swinney that "technical discussions" had been held with the bank about the currency union plan.

The Bank of England statement said: "To be clear, consistent with its statement in December 2012, the Bank of England has not entered into discussions with representatives of the Scottish government about proposals for future monetary arrangements in Scotland.

"As the governor said yesterday, the design of any changes to UK monetary and financial arrangements would ultimately be a matter for negotiation between the Westminster and Scottish Parliaments.

"The Bank of England will deliver whatever remit it is given."

'Stringent rebuke'

Better Together leader Alistair Darling said he was unable to remember a time when the Bank of England had been forced to "rebuke a politician in such stringent terms".

He said: "Yesterday John Swinney told us the Scottish government was having discussions with the Bank of England on a currency union. Today the Bank of England have said categorically that no such discussions on future monetary arrangements took place."

A Scottish government spokesman said: "The Scottish government has had ongoing technical discussions with the Bank of England, as the bank itself has previously confirmed.

"These technical discussions were inaugurated by former governor Mervyn King and continued under the current governor, Mark Carney, as confirmed in the statement issued after the meeting between the first minister and Mr Carney on January 29 this year, which was agreed by the bank.

"We have always made clear that these are technical discussions and not negotiations, and that we respect the neutrality and independence of the bank, which had made clear it will implement whatever is agreed."

More on This Story

The BBC is not responsible for the content of external Internet sites

More Scotland politics stories


Scotland Live

    07:42: Read all about it

    Police Scotland's policy on arming officers, the experience of Scotland's asylum seekers and Harrison Ford's plane crash all make this morning's front pages.

    Paper collage

    Read our full newspaper review here.

    07:34: M8 delays BBC Scotland Travel Latest

    Slow traffic #M8 Eastbound at J4 A801 (Whitburn). In the roadworks area. Travel time is ten minutes.

    07:33: 'Rangers can soon be number two'

    Dave King has been speaking to BBC Scotland about his immediate plans for Rangers ahead of today's key meeting on the future of the club.

    Dave King

    He said: "Stage one, within a short time, is to have Rangers as the number two club in Scotland - that can happen very quickly."

    But he admitted it would take "some time" for the club to fully challenge Old Firm rivals Celtic.

    07:25: New island ferry breaks down

    A new £42m ferry built for the Stornoway to Ullapool route has broken down forcing operator Caledonian MacBrayne to get its predecessor to take over sailings across the Minch.

    The MV Loch Seaforth only made its first passenger sailing on 13 February.


    It was built with three back-up engines which led to claims the ship was unlikely to ever break down.

    The ferry was stuck in Ullapool on Thursday night and the replacement was sent to take passengers to Stornoway.

    07:18: Deal on power stations Douglas Fraser Business and economy editor, Scotland

    The closure of Longannet or Peterhead power stations is set to be postponed by a deal to secure generating back-up.

    The giant coal-burner in Fife was facing earlier closure than expected, with its owner, Scottish Power, blaming the expense of connecting to the grid.


    However, National Grid has conceded it needs back-up to avoid power failures if the wind drops and Scottish wind turbines do not produce energy.

    It is negotiating with owners of gas and coal-burning power stations.

    07:15: Rangers latest Chris McLaughlin BBC Sport

    Rangers announce Sandy Easdale's voting rights in company have fallen 6% to just over 20%.

    Ferries cancelled BBC Scotland Travel Latest

    All #Uig - #Lochmaddy sailings have been cancelled today due to the high winds.

    07:10: Today's weather BBC Scotland Weather Latest

    A cloudy, mild day to come, with outbreaks of rain across the north and west. Across southern Scotland we may see a few spots of rain but it will remain largely dry.

    A southwesterly wind will gradually strengthen during the day, reaching gale force in exposed parts of the west coast and Shetland. Temperatures will reach nine to 12 Celsius.

    07:04: Rangers shareholders gather

    Rangers' extraordinary general meeting at Ibrox on Friday is expected to be swift, but with far-reaching consequences for the club.

    Shareholder Dave King is believed to have more than enough votes to secure the simple majority required to have his five resolutions passed.


    He wants chief executive Derek Llambias and finance director Barry Leach voted off the board.

    And King is nominating himself, Paul Murray and John Gilligan as directors.

    07:00: Welcome Marianne Taylor BBC Scotland news

    Good morning and welcome to BBC Scotland Live. We'll be here till 19:00 with all the latest news, sport, travel and weather from across Scotland.

    Stay in touch on Twitter using @bbcscotlandnews or by emailing



Try our new site and tell us what you think. Learn more
Take me there

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.