Whatever the “Yes” campaign claims, threatens or believes, here will be no currency union between an independent Scotland and the remainder of the United Kingdom. All three major parties plus UKIP have said this outright, and the voters back them up. Quite right too, unless you think it’s a good idea not to cancel the joint credit card after a bitter divorce.
(Just a reminder: there almost certainly will not be any divorce. All the polls point to Scotland choosing to remain part of the UK.)
So, to Plan B. Sterlingisation. The Guardian has flagged up a report from the Adam Smith Institute saying, correctly in my opinion, that for iScotland (OK, so I did just say “iScotland” and I cannot guarantee to resist “rUK” either – sue me) to use the pound as Panama uses the dollar would be the best option.
Under “sterlingisation”, Scotland would not be able to print its own currency and would lack a lender of last resort. But the ASI report said the experience of Panama pointed to this being an advantage because it would force lenders to be more prudent.
In contrast to the situation for a currency union, there would be nothing the rUK could do to stop iScotland simply deciding unilaterally to use the pound, and no reason it should care anyway. But it would be tough for Scotland at first. It would be the equivalent of gastric band surgery. No more splurging on welfare for you, Alba my love!
This is not the first time the Adam Smith Institute has said something like this. My post on currency options for an independent Scotland back in February was partly inspired by an article by Dr Eamonn Butler of the ASI.
You know my views. No surprise that a free-marketeer like me agrees with the ASI here. It does seem a little odd for the Yes campaign, spearheaded as it is by the Scottish National Party, backed by the Radical Independence Campaign and the National Collective, to be quite so keen.