Scotland politics

Scottish independence: Economists clash on post-independence currency options

Economists including a former Bank of England deputy governor have clashed over the currency options of an independent Scotland.

Sir John Gieve told MSPs a currency union could give the remainder of the UK control over policy that would be "politically unacceptable" to Scots.

But Glasgow University's Prof Anton Muscatelli said a currency union would be in everyone's interests.

The clash came ahead of Scotland's independence referendum.

On 18 September voters in Scotland will be asked the Yes/No question: "Should Scotland be an independent country?"

Sir John and Prof Muscatelli were among witnesses appearing before a Holyrood committee on the day after current Bank of England governor Mark Carney appeared before Westminster's Treasury committee.

Mr Carney refused to say if he favoured a currency union if Scots were to vote for independence.

The Scottish Parliament's economy, energy and tourism committee questioned five economists as part of its inquiry into Scotland's economic future post-2014.

Conservative MSP Murdo Fraser, chairing the committee, asked them their views on the "optimal currency arrangement" for Scotland and the rest of the UK (rUK).

Image copyright Andrew Cowan/Scottish Parliament
Image caption Sir John Gieve is a former member of the Bank of England's Monetary Policy Committee

Sir John said: "I can't see any real reason why it would be in the rest of the UK's interests to agree to a formal currency union unless on exceptionally controlling terms."

Sir John said the control the remainder of the UK would have over Scotland's fiscal policy could be "politically unacceptable north of the border" and he thought the rUK would prefer an "informal currency union" in which Scotland used the pound without monetary union or the services of the Bank of England.

Prof Ronald MacDonald, Adam Smith professor of political economy at Glasgow University, went further.

"Post-independence, the only option I can see for Scotland is a separate currency," he said.

"Nothing else will work, nothing else will be credible to the markets."

Dr Monique Ebell, research fellow at the National Institute of Economic and Social Research, said not having a separate currency "would narrow Scotland's policy choices quite considerably".

However, Prof Muscatelli backed the view of the Scottish government's Fiscal Commission Working Group that a currency union would be in the interests of both Scotland and the rest of the UK.

Image copyright Andrew Cowan/Scottish Parliament
Image caption The Holyrood committee heard from supporters and opponents of currency union

He said a separate currency would be his second preference over an informal use of the pound by Scotland, asking: "Would the rest of the UK really want a country informally using its currency on its doorstep?"

Prof Jeremy Peat, of the David Hume Institute, agreed, saying: "My preference in principle, without doubt, is the currency union, provided that can be achieved on terms which allow sufficient independence of policy action that enables Scotland to look after its own interests in the emerging environment."

None of the five economic experts proposed an independent Scotland joining the euro.

Last month, Chancellor George Osborne ruled out sharing the pound with an independent Scotland, a position that was backed by Labour and the Liberal Democrats.

Prof Peat also said he was "not sure what the loss would be to Scotland" if banks such as RBS moved their head offices if Scots voted "Yes", which Mr Carney has said was "a distinct possibility".

Prof Peat said: "I would be worried if we didn't have the competitive financial sector, I would be worried if we didn't have a sufficient head office base to stimulate those financial and business services.

"But I am not particularly worried if investment banking - casino banking - sticks in London and the risks associated stick in London."

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