So what are the real facts about currency union?

February 2014
Daily Mail;2/13/2014, p5
What is Alex Salmond's 'currency union' plan? The Scottish Government insists the British pound 'will continue to be the currency' of a separate Scotland. A formal monetary union with the rest of the UK would be created, with monetary policy set according to economic conditions across the sterling area, and shared ownership of the Bank of England. Can the SNP guarantee a currency union? No. There would have to be an agreement reached between the Scottish Government and the Westminster Government before independence. Could the plan work? The eurozone has shown monetary unions can be created, although - as seen in recent years - the lack of a political union to oversee it can cause economic chaos. How much influence would Scotland have? Very little. Due to its size, the rest of the UK would be the dominant partner. Bank of England governor Mark Carney said Scotland would be forced to sacrifice some 'national sovereignty' to Westminster and would also have to accept 'tight fiscal rules' over taxes, spending and borrowing. Is Westminster likely to agree to share sterling? No. Chancellor George Osborne is today expected to rule out a deal. Shadow Chancellor Ed Balls has also signalled he would block a deal if Labour wins the 2015 General Election. Is a deal in Westminster's economic interests? The risks outweigh the benefits. Although a sterling zone would keep cross-Border transaction costs low, Scotland only accounts for 10 per cent of the UK's trade. UK taxpayers would also have to bail out Scotland in an economic crisis. What is Salmond's plan B? Publicly, he does not have one. Could Scotland still use the pound anyway? Yes. One country cannot stop another from using its currency for trade. Developing countries such as Panama use the US dollar, and Montenegro uses the euro despite not being in the eurozone. What would that mean? Scotland would have no central bank and no control over interest rates or other aspects of monetary policy, which would be set in a foreign nation with no regard for Scotland's economy. Alex Salmond claims sterling and the Bank of England are 'assets' to be shared in the event of independence. Are they? The Bank is constituted under a UK Act of Parliament. There is a reasonable claim that Scotland would be entitled to a share of its physical assets, but the pound's true value is its reputation as a hard currency - and that can't be divided. Could Scotland just walk away from its £100billion share of the UK's debt? Theoretically, yes. But UK governments since Charles II have not defaulted. Scotland's international reputation would be destroyed and it would struggle to borrow money - leading to higher interest rates, with catastrophic results for business and mortgage holders. Could Scotland use its own currency? Yes. This would provide a separate Scotland with the full economic powers the SNP claims to want. Senior members of the Yes campaign favour this option. Would a Scots currency be linked to sterling? A separate currency could be pegged to the UK pound with a fixed exchange rate. That is the most likely option in the first years of independence. However, an independent Scotland could also introduce a flexible currency. What are the risks of a separate currency? There would be transaction costs for trading, investing, moving and spending across the Border. There would be difficulty deciding how contracts, savings, pensions and salaries would be converted into the new currency. If a flexible currency is used, the exchange rate would be very volatile because of its dependence on oil prices. Would Scotland have to adopt the euro? Since 1993, all new EU member states have been required to commit to join the euro. Scotland is therefore likely to be required to do the same at some unspecified date. But new members are also required to have their own stable currency for at least two years before joining ...


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