Scotland: Treasury wants a pound for a pound
Both the Treasury and the Scottish government agree that it makes good economic sense for Scotland and the rest of the UK to share a currency right now. They disagree on how attractive, or workable, it would be if Scotland were to become an independent country.
Which side is right? Unless or until the Scottish people vote for independence, we'll never know. Each is certainly overstating their case.
What their true negotiating position would be after Scottish independence is another thing we cannot know unless or until it actually happens. But even their pre-referendum arguments each have a grain of truth.
If you're a country, how do you decide whether to have the same currency as your neighbour?Eurozone lesson
Economists usually say the downsides to having a different currency are higher transaction costs and, potentially greater macroeconomic instability.
Companies have to worry about fluctuating exchange rates when they do deals across the border. And it costs everyone a little more to visit or do business with the other country.
As a government with its own independent currency, you also have to build your own credibility in world markets. If you share with another country, you have more chance of trading on their good name.
But there are also important upsides to currency independence - the largest being that when your central bank sets interest rates, it only has to worry about economic conditions here at home. It doesn't need to think about other countries that might be doing better or worse, or accept interest rates that have been set elsewhere.
There is little mention of Greece or Austria in the Treasury paper. But the basic argument is the same: supporters of Scottish independence are suggesting you can have your cake and eat it too. ”
Through history, countries have weighed up these two competing considerations: the greater stability and lower transaction costs that come with sharing your currency or fixing the exchange rate, versus the benefits of setting your own course (and interest rates).
The fact that currency arrangements have changed so much, and so dramatically, over the centuries, tells us the trade-off is tricky, and can change over time. If we didn't know that before, we have learned the lesson again, looking at what's happened with the eurozone.
When the euro was launched, at the turn of the century, most economists would probably have said the economic case for some of the 17 members signing was a lot stronger than others. In purely economic terms, it made a lot more sense for Austria to share a currency with Germany than it did for Greece.
Austria's economy was quite similar to Germany's in the late 1990s, in income terms and its levels of productivity. The two economies also tended to move together, over the course of the cycle. For good measure, they also spoke the same language and had a history of people moving back and forth across the border.
You could not say the same of Greece, which had much lower output and income per head, and an entirely different kind of economy to Germany. Currency union between Germany and Austria made quite a lot of economic sense - a union between Germany and Greece, rather less so, whatever the political arguments in favour.
I use the examples of Greece and Austria because each is only slightly larger, in economic terms, than Scotland would be, in the event of independence. Likewise, the difference in size between them and Germany is similar to the gap between Scotland and the rest of the UK.Oil income
Within the union, the Treasury paper basically says the current set-up for Scotland makes sense, for the same reasons that a currency union between Austria and Germany makes sense - though I should say they never make the comparison. The two economies are structurally very similar. They move together. And there's a lot of back and forth - of trade and people - between the two. Same language, too (give or take).
But if and when Scotland became independent, the paper suggests that a lot of those advantages would evaporate. Why? Primarily because without the financial transfers and political credibility that comes with being part of a single UK, Scotland's economy would be much more vulnerable to shocks, and less able to raise funds cheaply in world markets to even out the bumps.
Scotland's heavy reliance on North Sea oil and the financial sector for its revenues would, say the Treasury, make Scotland's economy much more volatile than the UK.
As I pointed out in a piece for BBC News at 10 on Monday, UK growth has been pushed down quite a lot recently by declining North Sea oil and gas output. Without it, the onshore economy would not even have had a double dip recession last year.
If it had been an independent country over the past decade, with a geographical share of oil and gas revenues, the impact of the recent fall in North Sea output on Scotland's tax revenues and overall economic growth would have been more dramatic.
Over time, the Treasury says the two countries would be less and less well synchronised if Scotland were independent. A currency union between Scotland and the rest of the UK would start to look less like Germany and Austria - a bit more like Germany and Greece.
There is little mention of Greece or Austria in the Treasury paper. But the basic argument is the same: supporters of Scottish independence are suggesting you can have your cake and eat it too.
The paper asserts that Scotland cannot have all the extra autonomy over taxes and spending and regulation that comes with independence, while somehow also hanging on to all the benefits of sharing a currency with the rest of the UK, because currency union after independence would have to work differently than it does now.
There would not be the same automatic fiscal transfers, helping to keep the two economies in sync. There would need to be a fiscal pact, and a clear agreement about how - and when - the Bank of England would ever bail out Scottish banks.
The Scottish government accepts the last part of this, that there would need to be a deal on fiscal policy and the banks. It disagrees that it would be so onerous for Scotland - or unattractive to the rest of the UK.
Economists might have sympathy with that second point. What George Osborne said on the Today programme on Tuesday morning was actually stronger than the report itself. He said it was "unlikely that a eurozone-style currency union with Scotland could be made to work" after independence.
It is not obvious, given the practical and economic advantages of currency union highlighted in the report, why that would be the case, if Scotland were willing to sign up to a Treasury-style set of constraints.
As I said at the start, we don't really know what the negotiations would look like in the event that Scotland actually chooses independence, and what we've heard on Tuesday may not provide much of a clue.
It's not entirely plausible that Westminster would turn its nose up at a currency union with Scotland, in those circumstances. But nor is the idea that Scotland could win significant economic freedom as an independent country - without giving up anything significant in return.