Some of the world’s leading economists have issued stark warnings of the dangers an independent Scotland would face after leaving the UK’s sterling currency zone.
Speaking to These Islands for a report on the currency issue, Dame DeAnne Julius, a founding member of the Bank of England’s Monetary Policy Committee and a former chief economist at British Airways and Shell, described Nicola Sturgeon’s plan to continue to use the British pound outside of the official sterling currency zone or – ‘sterlingisation’ – as “a hugely risky experiment for Scotland”.
She explained: “The evidence one could look to for this kind of arrangement are places that are quite different and at a different development level – places like Argentina – and it’s impossible, I think, to find any place that is a success story undertaking this route of political independence using a currency issued by another country.”
These Islands is a not-for-profit organisation which describes itself as a “forum for debate” based around the view “that more unites the three nations of Great Britain than divides them”.
Founded by economics blogger Kevin Hague, the group commissioned various monetary experts to look at the idea of an independent Scotland continuing to use the Bank of England-issued currency.
There is an ongoing debate within the SNP on what currency an independent Scotland would use. The idea of a monetary union with the rest of the UK was rejected by the Conservative government in the run up to the 2014 referendum.
The SNP Sustainable Growth Commission blueprint for independence in 2018 suggested Scotland would use the pound but outside of a formal monetary union with the remaining UK.
Others argue for a new currency or adopting the Euro if Scotland rejoined the European Union.
Professor Cédric Tille, member of the Bank Council of the Swiss National Bank and head of the Bilateral Assistance and Capacity Building for Central Banks Programme at the Graduate Institute Geneva, warned the new state could find itself seeking a financial bailout from the International Monetary Fund (IMF).
“Looking at the massive Scottish fiscal and current account deficits, my advice to the new prime minister, should the country split off, would be to address these structural challenges or develop good links with the IMF, because she or he might well need their assistance in the future,” he stated.
Harvard University economist Professor Jeffrey Frankel, who served on the US President’s Council of Economic Advisers during the Clinton administration and has published extensively on exchange rate regimes, said: “I think Scotland would have to undergo a profound change and would probably have to make some difficult economic adjustments.”
St Andrews University’s Professor Alan Sutherland warned that sterlingisation would have serious impacts on the Scottish banking system, noting: “Some borrowers will just not get mortgages anymore, some businesses will not get loans, rates of interest will be much higher.”
Commenting on the report, Kevin Hague, chairman at These Islands, said: “These warnings come from some of the world’s most respected macroeconomics and currency experts, and should be a wake-up call to anyone inclined to believe the argument that leaving the UK’s currency area can be achieved at no risk.”