Scottish independence: Currency debate explained

Bank of England money The debate continues over whether a post "yes" Scotland would continue to use sterling as its currency

What currency would Scotland have in the event of independence? It's become one of the big issues, ahead of September's referendum.

On one side, the UK coalition government, made up of the Tories and the Lib Dems, and the Labour Party, say they have ruled out a currency union with an independent Scotland.

On the other, the Scottish government says that following a "Yes" vote, it's in everyone's interests to share the pound and retain the services of the Bank of England.

It's a debate which has sparked discussion on all sides, from politicians to businesses and the financial industry itself.

Here's what you should know about the post "Yes" currency debate.

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The case for a currency union...

In its White Paper blueprint for independence, the Scottish government says a currency union is vital to let companies go about their business, otherwise there could be a damaging effect in the rest of the UK.

It's also argued sterling would benefit from Scotland's continued involvement given assets like North Sea oil and gas.

SNP ministers also say monetary unions still leave room for significant differences in fiscal and economic policies.

They point to Luxembourg and Belgium, which have been in currency unions for decades but have different tax policies.

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The case against a currency union...

The Westminster government says Scotland already has a working currency arrangement with the rest of the UK - and it's called the Union.

It says an independent Scotland would face having to agree to (negotiated) constraints on economic policy with the rest of the country.

The UK government also asks why the rest of the UK should enter into a sterling union with Scotland, when recent experience in the euro area has shown how difficult these agreements are to maintain.

They also raise a further scenario. If Scotland failed to make a formal deal on currency, it would be free to unilaterally adopt sterling - a situation under which the Bank of England may simply continue on without taking account of Scottish conditions.

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Who is saying what?

Former banking bosses....

Bank of England building
  • John Nugée, former Bank of England senior manager: "The first minister [Alex Salmond] has stated firmly that he hopes to conclude a common monetary area with the continuing UK, enabling an independent Scotland to retain the pound, the services of the Bank of England and the financial underpinning of the UK treasury for Scottish financial institutions. It is indeed almost certainly in Scotland's interest to conclude such an agreement. But it is not in Alex Salmond's power to do so single-handedly. It requires the agreement and consent of the continuing UK government, and it is nothing like as clear that, viewed from England, Wales and Northern Ireland, a common monetary area with an independent Scotland is desirable."
  • Brian Quinn, former executive director, Bank of England: "By choosing to announce its preference to retain sterling as the currency of an independent Scotland, the current Scottish Government has effectively surrendered its freedom to determine monetary policy and severely circumscribed its freedom of action in the area of public finance. Choosing to rely on the Bank of England to supervise its banks - and other financial institutions - may prove to be an empty choice if it proves necessary to establish its own supervisory institutions in accordance with what is understood to be EU statutes."

Economists and academics....

Economists look at a bank of screens
  • Jim and Margaret Cuthbert, economists: "Scotland has to be very careful that, in negotiating its relations with bodies like the rest of the UK and the EU, it does not make concessions which will impose constraints which ultimately prove to be crippling. Any choices, for example about forming a sterling currency union with the rest of the UK would have to be viewed very carefully in this respect. An independent Scotland is going to have the will and courage to deal with the other constraints it will face."
  • Dr Jim Walker, founder and chief economist, Asianomics Limited: "Is the British government contemplating the reintroduction of capital controls in which sterling cannot be moved around freely? I ask this in all seriousness given some politicians' and bureaucrats' reactions to the proposition that an independent Scotland would seek to enter a formal currency union with the rest of the UK, a suggestion made in the interests of friendship, continuity and mutual benefit. If capital controls are not being contemplated, then there is no question about Scotland being able to continue using sterling, and clearly therefore a formal currency union would suit both partners best."
  • Prof David Blanchflower, former external member, Monetary Policy Committee: "Should the people of Scotland choose independence in next year's referendum it would make sense for Scotland to enter a formal monetary union with the rest of the UK with the Bank of England operating as central bank for the common monetary area. Independence within a currency union would represent a substantial increase in the economic responsibilities of the Scottish Parliament. A currency union would provide the full flexibility to vary tax and spending decisions to target key opportunities and challenges in Scotland - powers that are currently unavailable to the Scottish Parliament."
  • Prof John Kay, former member, Scottish government's council of economic advisers and visiting professor, London School of Economics: "The currency issue is crucial - Scotland would be right to seek agreement on monetary union with the remaining United Kingdom, but it would be difficult to negotiate an agreement that would be consistent with the fiscal freedom sought through independence.
  • Prof Andrew Hughes-Hallett, economics and public policy, George Mason University, United States: There's nothing which the Bank of England or the British government could do to stop Scotland using the pound if she so wished. It might not be very desirable, as opposed to a jointly-run, that's to say a multi-bilateral arrangement, by agreement between the two countries."

Bankers and business....

Triple As, symbolic of triple A rating
  • Fitch, credit rating agency: "The monetary arrangement following Scottish independence could become a source of uncertainty even if Scotland remained in the sterling currency zone. As the intensification of the eurozone crisis showed in 2012, a monetary union without fiscal and banking union is unstable and the prospect of an exit from a monetary union could lead to high volatility and market turbulence, potentially detrimental to all members."
  • Jim McColl, founder of Clyde Blowers, co-signatory in a letter to the Scotsman: "It is in the interests of Scotland and the rest of the UK - the financial firms, wider business community and the people - to maintain the same currency. Many Scottish firms have the vast majority of their customers south of the Border, and Scotland is the second largest export market for English business. The strength of sterling in part relies on Scotland's North Sea oil and gas reserves."
  • Oliver Harvey, strategist, Deutsche Bank: "Scotland fits an optimum currency area with the rest of the UK very well."
  • Rod MacLeod and Hamish Patrick, banking and finance lawyers, Tods Murray: "If an independent Scotland keeps the pound, there needs to be an appreciation that, at best, Scotland will have limited control over monetary policy as the junior partner in any currency union or even less influence if a currency pact is rejected."

Politicians and campaigners....

Notes of sterling
  • Alistair Darling, leader of Better Together and former UK chancellor: "We are being asked to take a huge leap into the unknown. When Alex Salmond can't even tell us what currency we will have in our pocket it's little wonder people aren't willing to take the risk."
  • Blair Jenkins, chief executive, Yes Scotland: "The pound belongs as much to Scotland as it does to the rest of the UK. There is no question of an independent Scotland not being able to use sterling because that would be in the best interest of everybody in these islands."
  • Sir John Major, former UK Prime Minister and chancellor: "A currency union, which the SNP assume is negotiable, would require the UK to underwrite Scottish debts. That cannot, will not, happen if Scotland leaves the Union. There can be no halfway house, no quasi-independence underpinned by UK institutions."
  • John Swinney, Scottish finance secretary: "Scotland will continue to use the pound, just as we do today because, in Alistair Darling's own words, that is the 'logical' and 'desirable' arrangement for an independent Scotland and the rest of the UK."
  • Carwyn Jones, Welsh first minister: "I just don't know how this works. If you have a currency union, who decides on monetary policy? You've got two governments potentially with a view on that. "It's a very messy system from Wales's point of view. I'd be very, very worried about any currency system that involved the need to get agreement from different governments."

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    Ed Miliband, Douglas Alexander and Jim Murphy Jim Murphy (right) "I've got sharp enough elbows"

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    10:55: 'End the period of self harm'

    Scottish Labour leader candidate Jim Murphy wants to bottle the "passion and determination" that was demonstrated by Scots during the referendum campaign.

    "We should use that energy from the referendum to try to solve some of the problems we do have in Scotland: health inequality, problems in housing, how do we improve our schools, how do we make sure young people get a chance to have a career?" he added.

    "I am determined to bring the Labour Party together and end the period of self-harm we have had in the Scottish Labour Party and get on and improve our country."

     
  60.  
    10:50: Murphy wants to change Labour

    Jim Murphy, speaking to the BBC's James Cook, says he is "proud of the Scottish Labour Party and proud of Scotland but I am not satisfied".

    He added: "There is so much that has to change about the Labour party and so much has to change about our country.

    Labour MP Jim Murphy

    "I am standing, not just to be the Scottish Labour leader - which would be a privilege in itself - but I am standing to be a candidate for first minister."

    Mr Murphy, shadow Secretary of State for International Development, has joined MSPs Neil Findlay and Sarah Boyack in the contest to be the new leader of Scottish Labour.

     
  61.  
    10:39: A83 landslip

    Contractors hope to clear the remaining debris from a 2,000 tonne landslip on the A83 and reopen the road at the Rest and Be Thankful in Argyll.

    A83 landslip

    Bear Scotland said work to clear the road resumed at 07:00 on Thursday and they hoped to have it open later.

     
  62.  
    Text 80295 10:31: Your Views - Cannabis

    On Radio Scotland's Morning Call, there has been a discussion about cannabis as statistics show that the number of people taken to hospital because of the drug is at a record high.

    Derek: I've been a smoker of cannabis for over 20 years. I have a job, mortgage, marriage and kids - all perfectly normal and well adjusted. We don't drink in my house or partake in chemical abuse. Due to my cannabis use, I have been criminalised since age of 18.

    H in Edinburgh: They have banned smoking in public areas yet people want cannabis legalised. I'd rather stand beside a smoker than a drug taker. Cannabis has ruined one of son's lives and nearly my other son. Hate it. It scares me.

     
  63.  
    10:13: D-Day for Scotland's women

    It is a big day for the Scotland Women football team. Tonight, they take on the Netherlands in the World Cup play-off semi-final second-leg.

    The Scots lost the first leg at Tynecastle 2-1, and head coach Anna Signeul has called on her team to be brave.

    Scotland's women face Netherlands

    Tonight's game, which kicks off at 18:00 GMT, is live on BBC ALBA, BBC Radio Scotland and the BBC Sport website.

     
  64.  
    10:00: Asbestos legacy

    Many consider asbestos to be an uncomfortable relic of industrial history but families across the UK continue to live with its legacy, as BBC Scotland's Alicia Queiro discovered.

    Mary Campbell, mesothelioma sufferer
     
  65.  
    09:48: Clydesdale could be sold

    National Australia Bank is considering floating its UK operations on the stock market as part of an exit from the UK.

    NAB said it was looking at all options for the future of the Clydesdale and Yorkshire banking division.

    Clydesdale Bank

    The news came as the Melbourne-based bank announced a fall in profits, due mainly to problems at its UK operation.

     
  66.  
    09:40: World War memories Steven McKenzie BBC Scotland Highlands and Islands reporter

    Artefacts from a museum in Belgium are to form part of a series of exhibitions recalling the high number of Hebridean lives lost in the First World War.

    Of more than 6,500 men from Lewis, an isle with a population of fewer than 30,000 at the time, 1,151 of them were killed on active service. It was one of the highest proportions of any community in the UK.

    Soldiers in trench

    Items from the collections of In Flanders Fields Museum in Ypres are to be displayed on the Western Isles. The photographs and other artefacts form part of the Gairm nan Gaidheal - Call of the Gael - project being run by the Gaelic Arts Agency.

     
  67.  
    newsonlinescotland@bbc.co.uk 09:32: Get Involved - Best Cup games

    Iain in Perth: Last season's Hearts-Inverness League Cup semi-final was truly remarkable. The Highlanders were losing 2-1 and down to nine men, but they equalised with the last kick, survived extra time and won it on penalties despite missing the first one. A particularly bad day for the Hearts player who had been high-fiving fans when going to take a corner in injury time!

    What do you think was the best ever cup match? Did a late goal rescue you from the depths of despair behind your seat/couch?

    Share your memories of nerve-shredding encounters via email, text 80295 or tweet #ScotlandLive

     
  68.  
    09:30: Rangers update

    Rangers' non-executive chairman David Somers has been appointed executive chairman on a temporary basis.

    David Somers

    Somers will oversee the recruitment of a new chief executive and finance director following the departures of Graham Wallace and Philip Nash.

    The announcement comes after Somers' talks with Mike Ashley's associates Derek Llambias and Barry Leach.

     
  69.  
    09:27: Guidetti, Ashley & Mark Wotte

    John Guidetti is the talk of the town after scoring a hat-trick against Partick Thistle, while former Rangers midfielder Ray Wilkins believes the club's fans should be happy to have Mike Ashley involved at Ibrox.

    John Guidetti

    Meanwhile, one Scotland international believes former SFA performance director Mark Wotte will receive the credit he deserves in years to come.

    Read all the latest gossip.

     
  70.  
    Text 80295 09:23: NHS pressures - Your Views

    Stewart Watson, Milngavie: The underfunding of the NHS is a deliberate UK govt tactic in preparation for privatisation. They did it to British Gas, British Rail and Royal Mail. When the company struggles, the story is put out that the way to save it is to sell it off. If we don't wake-up, we will lose the NHS.

    John: If people demand more NHS then they can pay more tax - I suggest by putting a £1 on a bottle of alcohol to go direct to NHS - or £1 on fatty foods - tax on the things that tend to put people in hospital - tobacco already taxed this way.

     
  71.  
    09:19: Relief for McNamara

    The relief on Jackie McNamara's face was clear to see after his Dundee United side defeated Hibs in the League Cup.

    United triumphed over the Edinburgh team after a thrilling penalty shoot-out.

    Jackie McNamara

    Watch his post match interview with John Barnes.

     
  72.  
    09:16: NHS struggles

    The NHS in Scotland is finding it "increasingly difficult to cope" with the "significant pressures" being placed on it, according to the public spending watchdog.

    NHS Scotland

    Audit Scotland said NHS budgets were tightening at the same time as demand for health services was increasing.

     
  73.  
    09:09: John Byrne exhibition

    A new exhibition of paintings by Scots artist John Byrne will open at Inverness Museum and Art Gallery on Saturday.

    John Byrne self portrait

    Byrne was born in Paisley, studied at Glasgow School of Art and has lived and worked in the Highlands for many years.

     
  74.  
    09:03: Tune in... Louise White Presenter, Morning Call

    Following a report that the NHS in Scotland is finding it "increasingly difficult to cope", is it time to change the way the service operates?

    And, as statistics show that the number of people taken to hospital because of cannabis use is at a record high, is it time to take the drug seriously?

    Listen live to Morning Call here.

     
  75.  
    08:55: What was that blast?

    Islanders in the Outer Hebrides are waiting to hear if the MoD was responsible for a huge bang heard as far apart as Benbecula and Barra.

    Western Isles

    Speculation over what Wednesday's blast could have been ranges from an earthquake to an aircraft's sonic boom.

     
  76.  
    08:45: Miliband in Scotland

    Labour's UK leader Ed Miliband is due to attend a fundraising dinner in Glasgow as the process of finding a new Scottish leader continues.

    Ed Miliband and Labour leadership

    The event at the Grand Central Hotel will be the first major gathering of Labour members north of the border since the independence referendum.

     
  77.  
    08:41: Murray target

    Andy Murray has moved to within one win of qualifying for the World Tour Finals with a 6-3 6-4 victory over Julien Benneteau at the Paris Masters.

    Murray, who is fifth in the race to qualify for November's finals, outclassed his French opponent in 71 minutes to reach the third round.

    Andy Murray

    The Scot, who has won three titles in five weeks, will face Grigor Dimitrov - who beat Murray at Wimbledon - later today. You can listen to commentary of the match on Radio 5 Live Sports Extra from 13:00.

     
  78.  
    08:34: Young Fathers show paternal promise

    Edinburgh-based hip-hop trio Young Fathers have won the 2014 Barclaycard Mercury Prize for the best British or Irish record of the last 12 months.

    Their record, Dead, beat 11 other albums from acts including Damon Albarn, Bombay Bicycle Club and bookmakers' favourite, FKA Twigs.

    Young Fathers

    "We'll take it in our stride," said band member Graham 'G' Hastings.

    "We always wanted to make something bigger than the city we were living in."

    Hands up who's all heard of the band? A straw poll in our newsroom suggests Young Fathers are a hidden gem...

     
  79.  
    08:25: Guidetti finds the netty...

    In other League Cup action, on-loan striker John Guidetti bagged a hat-trick as Celtic thrashed Partick Thistle 6-0 and Aberdeen defeated Hamilton 1-0.

    John Guidetti celebrates after scoring a hat-trick for Celtic against Partick Thistle

    Rangers join Celtic, Aberdeen and Dundee United in Saturday's draw for the semi-finals.

     
  80.  
    08:20: Best ever finish to a game? Graham Fraser BBC Scotland

    Last night, Scottish football fans witnessed one of the best cup games in recent history with a thrilling penalty shoot-out win for Dundee United over Hibs in the League Cup.

    Dundee United

    United goalkeeper Radoslaw Cierzniak saved two shoot-out penalties to send Jackie McNamara's side through to the last four after the match finished 3-3.

    We'd like to hear your thoughts. What was the best cup match you have ever seen in Scotland? Email us, text us on 80295 or tweet using the #ScotlandLive and we will share some of the best.

     
  81.  
    08:15: Read all about it...

    The Scotsman leads with news that Jim Murphy MP ended days of speculation by declaring his candidacy for the post of Scottish Labour leader.

    Papers

    The Herald leads on the NHS, carrying a warning from Audit Scotland that health boards are battling financial pressures.

    Meanwhile, NHS Tayside is facing crisis, reports The Courier.

    Read our full review of today's newspapers here.

     
  82.  
    08:11: Labour leadership battle Brian Taylor Political editor, Scotland

    Jim Murphy will stress he'll be in charge of hiring and firing and the issues of powers for the Scottish Parliament and endorsing perhaps a more ambitious scheme.

    Labour MP Jim Murphy

    I think he'll argue across the spectrum of the party more generally and will argue that he's built a reputation as an MP, parliamentarian and as a member of the party for standing up for the rights of the Scottish people.

    But he'll be a figure of some suspicion for some on the Left, particularly the larger trade unions.

     
  83.  
    08:07: Travel latest BBC Scotland Travel Latest

    Edinburgh - Newbridge- E/B A8 - all lanes open - was a breakdown just after lights at the M9 exit slip at J1 newbridge - but u are slow.

     
  84.  
    08:04: Weather update BBC Scotland Weather Latest

    Good morning, Kirsteen here. A cloudy, mild start, with outbreaks of rain. Improving in the east, with bright/sunny spells. Highs 15C. Breezy.

     
  85.  
    08:02: Coming up... Gary Robertson BBC Radio Scotland

    Scottish Labour leadership contest now a three-horse race. Political Editor Brian Taylor #bbcgms 0810.

     
  86.  
    08:01: Murphy confirms leadership bid

    The MP Jim Murphy has confirmed he will stand for the leadership of the Labour Party in Scotland.

    Mr Murphy, who represents East Renfrewshire at Westminster, has told BBC Scotland of his intention and will make a formal announcement today.

    MP Jim Murphy

    The shadow Secretary of State for International Development joins MSPs Neil Findlay and Sarah Boyack in the contest.

    Mr Murphy told the BBC he was seeking a "fresh start for Scotland and the Labour Party".

    The contest was sparked after leader of nearly three years, Johann Lamont, resigned last Friday.

     
  87.  
    08:00: Welcome Thomas McGuigan BBC Scotland News

    It's time to roll out of bed - forgive us if you've already done so - and enjoy our rolling live text coverage of news, sport, travel and weather from now until 18:00.

     

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