Economists warn Scotland over keeping pound if independence goes ahead
New research suggests a formal currency union with the UK would be neither practical nor desirable.
An independent Scotland that votes to keep the pound would be forced into an unstable currency regime resembling the dollarisation seen in countries such as Panama, new research has concluded.
Economists at thinktank the National Institute of Economic and Social Research (NIESR) argue that if Scotland kept the pound, a formal currency union with the UK would be neither practical nor desirable because the two countries are so different in size.
It would leave Scotland with the pound, but with no banking union and with no public spending constraints – limits on fiscal deficits and debt levels – between the two countries.
The population of the rest of the UK is more than 10 times the size of Scotland’s. “Because the UK and an independent Scotland would be so different in terms of size, it may be difficult to justify fiscal constraints or banking union,” argue Angus Armstrong and Monique Ebell of NIESR in the report.