The debate over Scotland’s future within the UK will come to a head on 18 September when Scotland’s voters go to the polls in a referendum on independence. Currency is the issue lying at the centre of the debate over Scottish independence, amid an ongoing dispute over whether an independent Scotland will be permitted to retain the pound through a currency union.
The leaders of the three principal UK political parties – David Cameron, Ed Miliband, and Nick Clegg – have all stated that they would not support a formal currency union. However, the National Institute of Economic & Social Research (NIESR) has warned that, without a formal currency union between Scotland and the rest of the UK, Scottish banks will not have the backing of a “lender of last resort”. In that case, not only are Scottish banks unlikely to be able to access to emergency liquidity in the event of another financial crisis, but also the Prudential Regulatory Authority (PRA) might insist that “systemically important banks” using sterling should be domiciled in the UK.
Moreover, an independent Scotland might have to set up and fund its own financial regulatory authority and its own consumer protection system. Credit ratings agency Moody’s has warned that an independent Scotland is likely to be awarded a lower credit rating than the rest of the UK following independence. This would mean that the cost of borrowing for Scotland’s independent government would be higher than for the rest of the UK.
Meanwhile, concerns are mounting over the future of some of the UK’s largest financial institutions if the “Yes” vote wins the day. Scotland’s financial sector employs around 200,000 people, according to Scottish Financial Enterprise , and generates about £7 billion for the country’s economy. However, a recent survey conducted by specialist financial recruitment company Marks Sattin found that over two-thirds of UK financial professionals believe that Scottish independence makes no economic or financial sense.
Although the Bank of England (BoE) has remained neutral over the issue of independence and currency union, Governor Mark Carney has disclosed that the Bank has developed contingency plans to address currency issues in the event of “Yes” vote, in order to ensure financial stability. Mr Carney emphasised that the BoE’s responsibility was to safeguard the financial stability of the entire UK, and to “implement whatever (they are) asked to implement”.