An independent Scotland will be able to decide our currency and the arrangements for monetary policy. Four currency options were examined by the Fiscal Commission — the continued use of Sterling (pegged and flexible), the creation of a Scottish currency and membership of the Euro.
They concluded that retaining Sterling as part of a formal monetary union with rest of the UK will be the best option. The Fiscal Commission proposed a practical and workable model, including governance and institutional arrangements that would create a successful and robust framework.
The Commission’s analysis shows that it will not only be in Scotland’s interests to retain Sterling but that — post independence — this will also benefit the rest of the UK.
Under such an arrangement, monetary policy will be set according to economic conditions across the Sterling Area with ownership and governance of the Bank of England undertaken on a shareholder basis…
The Fiscal Commission considered the currency options for an independent Scotland. Following a detailed analysis of the various options, the Commission:
commends to the Scottish Government retaining Sterling as part of a formal monetary union, and believes that this provides a strong overarching framework for Scotland post-independence.
Analysis highlights a number of key reasons why this would be in both Scotland and the UK’s interests immediately post-independence:
- the UK is Scotland’s principal trading partner accounting for 2/3 of exports in 2011, whilst figures cited by HM Treasury suggest that Scotland is the UK’s second largest trading partner with exports to Scotland greater than to Brazil, South Africa, Russia, India, China and Japan put together
- there is clear evidence of companies operating in Scotland and the UK with complex cross-border supply chains
- a high degree of labour mobility — helped by transport links, culture and language
- on key measurements of an optimal currency area, the Scottish and UK economies score well — for example, similar levels of productivity
- evidence of economic cycles shows that while there have been periods of temporary divergence, there is a relatively high degree of synchronicity in short-term economic trends
It would, of course, be open to people in Scotland to choose a different arrangement in the future. However, we believe that this proposal is the right one for Scotland and that it reflects the modern partnership that we seek between the nations of these isles following independence.
A shared successful monetary union needs to have an adequately designed framework for financial stability and fiscal sustainability. These are areas which have also been examined in detail and reflected in the recommendations and advice of the Fiscal Commission.