Scotland’s currency conundrum?
The SNP’s recent proposals for an independent Scottish currency mark a significant change in approach to that adopted in the last independence referendum. Arguably, the lack of clarity on the currency weakened the previous campaign. This time the policy is clear, but still challenging and difficult.
Given the time and cost of establishing a new currency, it is easy to see why using an existing currency was an attractive option the last time round. However, using the UK pound or the Euro essentially hands over control of monetary policy to another country, which hardly sits comfortably with the notion of independence. For example, if England were to experience a boost to growth following Brexit, the Bank of England may have to raise interest rates to contain inflationary pressure. This might be exactly what a struggling Scottish economy does not need! Similarly, ECB policy would also reflect the needs of the Eurozone as a whole rather than the particular needs of a small member state.
The alternative is to have a Scottish currency – which is a more…