'Sterlingization' of an Independent Scotland

Independence makes no sense expressed in dollars and cents, pounds, shillings or pence.

For all the brouhaha, poll after poll indicates that the 18 September referendum on Scottish independence will clearly go in favor of remaining in Great Britain. This being the IPE Zone, I would like to point out that the largest source of political anxiety for would-be supporters of going it alone is good ol' economics: what happens to Scotland's economy? Proponents of independence claim that the North Sea oil fields still have a much longer lifespan than what British government estimates suggest, ensuring that royalties will continue to be healthy. OTOH, the question of what currency Scotland will have remains unanswered in most peoples' minds.

Pro-independence First Minister Alex Salmond has an answer to this: blackmail. If England boots Scotland out of the pound zone, Scotland will renounce its share of the UK's debt. So, he says, the English will allow Scotland to keep using the pound:

The pound has been a big issue throughout the battle for Scottish votes in the independence referendum, but increasingly it dominates the debate above all else. Why does it matter? The Scottish government - led by First Minister Alex Salmond - is certainly clear on its Plan A, which is that it intends to negotiate to continue to share the pound with the rest of the UK in a formal currency union. 

One reason Mr Salmond feels confident that will happen is he and his colleagues have said they could refuse to take on a share of the national debt if the UK refused to share assets such as sterling. But the current UK government and the Better Together campaign, led by Labour's Alistair Darling, don't accept that analysis and insist there will be no deal.

So actually, the "jerk" approach favored by Salmond is doubtful. What else could be implemented currency-wise?

There are other options - the euro, a separate Scottish currency or Scotland goes ahead and uses the pound without formal agreement, which is known as sterlingisation. But the Scottish government has already said it does not favour the euro. Mr Salmond has often stated sterlingisation would only be a suitable "transitional" arrangement. And he's said those who would prefer Scotland to switch to "our own currency" would have to win support for that in an election.

Salmond then offers a menu of choices, none of which are necessarily palatable:

This time the first minister revealed there was not one Plan B but three.  Mr Salmond told viewers: "We could have a Scottish currency. We could have a flexible currency like Sweden or Norway has. We could have a fixed rate Scottish pound attached to the pound sterling. That's what Denmark does with the euro and Hong Kong does with the dollar."

Asked to choose between these options, Mr Salmond stuck by his preferred Plan A, saying no-one could stop Scotland using the pound and no chancellor would let Scotland get away with escaping its share of the UK debt liabilities. "We don't need permission to use our own currency. The argument actually is that they will deny us the assets of the Bank of England. The reason that won't happen is that if you deny us the financial assets, then the UK will get stuck with all of the liabilities," he said.

However Mr Darling argued: "If your first message in the world is here we are, here is Scotland, and by the way we've just defaulted on our debt, what do you think that would do to people who are lending us money in the future? Nobody would lend us any money in the future."

Money changes everything, and I am in agreement that currency is the largest obstacle--among very many--to Scottish independence. It is a thoroughly bad idea.