Mark Carney: economically possible for independent Scotland to join currency union with UK

AN independent Scotland could enter into a currency union with the rest of the United Kingdom, Mark Carney, the Governor of the Bank of England, has suggested.

The bank chief insisted it would be economically possible but stressed that it would be for others to decide if it was politically desirable.

His comments come just days before the SNP’s Growth Commission is due to publish on Friday its economic analysis for an independent Scotland – commissioned by Nicola Sturgeon in the wake of the Brexit vote in 2016 – and which is thought will include the prospect of Scots having their own currency should they decide to break from the UK in a future vote.

One suggestion is that the Commission will support a gradual transition in currency with an independent Scotland continuing to use the pound before switching to a new currency that would initially be pegged to Sterling.

READ MORE: Economy Secretary: Scotland may be using a new currency within a decade

The SNP proposed a currency union ahead of the 2014 referendum, which would have seen Scotland continue to use the pound.

However, a formal arrangement was dramatically ruled out by then-Chancellor George Osborne in his famous “Sermon on the Pound” in Edinburgh, a move that was widely seen as being a key factor for Yes losing the vote.

At the time, Sir Nicholas Macpherson, the Treasury's top civil servant, "strongly" advised Mr Osborne against agreeing to the currency union proposal, which he said would have been "fraught with difficulty".

At a session of the Commons Treasury Committee, Labour’s Wes Streeting pointed out how Nicola Sturgeon had announced it was time to restart the debate on Scottish independence as the Commission’s report was published and asked Mr Carney if he still believed a currency union between an independent Scotland and the rest of the UK was incompatible.

READ MORE: Economy Secretary: Scotland may be using a new currency within a decade

“There are a number of requirements for an effective currency union and they include an element of fiscal union, that’s pretty widely accepted,” explained the Governor.

“It’s clear there are different ways to construct that, but it also includes having a form of financial market union, banking union, capital market union, all of the components European monetary union is still trying to construct.

“The best way to conform it is to quote the President of the ECB, who has said repeatedly that EMU is unfinished business because some of the elements are there but not all the elements are there.”

When Mr Streeting asked about the issue of political union, Mr Carney replied: “From an economic perspective, it’s not necessary. The question is from a political perspective. If you have this sort of shared economic sovereignty, you require a political union. But there are lots of other determinants of whether one has a political union but others can judge.”

READ MORE: Economy Secretary: Scotland may be using a new currency within a decade

Later, he returned to the subject and said: “The question was asked whether a currency union requires a political union…No from the strict economics it doesn’t; it’s for others to judge whether the degree of shared sovereignty such as some form of fiscal equalisation arrangement, whether that in and of itself – which is highly desirable for an effective currency union – has political ramifications but that’s an observance that then drifts into politics for others to answer.

“There are lots of examples in this world where economic sovereignty is shared – global financial regulation and trade agreements is another example – and is not political really but that’s your world, those are political decisions to be made,” added the Governor.

Earlier, Keith Brown, the Scottish Government’s Economy Secretary, said Scotland could have ditched the pound in favour of a new currency within 10 to 15 years, noting how it was impossible to tell what currency the nation would be using in the next decade.

READ MORE: Economy Secretary: Scotland may be using a new currency within a decade

He made the comments after he was questioned about plans for a Scottish National Investment Bank at Holyrood’s Economy Committee.

Scottish Conservative MSP Dean Lockhart asked: “Can you confirm that the Scottish National Investment Bank will continue to use Sterling as its currency over the next 10 to 15 years?”

Mr Brown replied: “That would be the person that's got the job of trying to establish certainty going forward to a 15-year period; nobody else can do that.

“Who knows what changes are going to happen over the course of that time? That's the currency they're going to work in, sure, when they're started, but beyond that who can say what currency changes are going to make. I certainly can't; I'm not a currency expert.”

The Economy Secretary, who is the favourite in the contest to become deputy leader of the SNP, previously said he wanted to help get the party ready for “any future referendums,” noting how a second vote on Scotland’s future could be held "in 12 months or two years".

 



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