The No campaign’s most repeated scare story is that an independent Scotland wouldn’t be able to keep the UK pound. This is a categorical lie. Sterling is what’s known as a “fully-tradeable” international currency, which means that any country can use it if it wants to, without requiring the UK government’s permission.
So even if the threats made by George Osborne (and backed by Ed Balls and Danny Alexander) that Westminster would refuse a formal currency union were to turn out to be true, nothing could stop Scotland from continuing to use the pound.
Many economic experts actually believe that using Sterling “unofficially” would be a BETTER plan for Scotland. In February this year Sam Bowman, research director of the world-renowned Adam Smith Institute, said:
“An independent Scotland would not need England’s permission to continue using the pound sterling, and in fact would be better off using the pound without such permission.
An independent Scotland that used the pound as its base currency without the English government’s permission would probably have a more stable financial system and economy than England itself.”
Professor Lawrence White of the Institute of Economic Affairs agreed, noting that while informal use would leave Scotland without a national central bank, such an arrangement can actually be a positive:
“The possibility of banking panic justifies having a central bank only if it can be shown that panics are more frequent and severe in countries without central banking than in countries with central banking.
The evidence actually points the other way.
An official lender of last resort can unintentionally worsen the problem of banking panics if it makes explicit or implicit bailout guarantees that encourage banks to take undue risks”
In any event, most experts agree that the Unionist parties’ position is a bluff. In March 2014 Janan Ganesh of the Financial Times (and formerly of The Economist), who also wrote a biography of George Osborne in 2012, told the BBC’s Sunday Politics that:
“If the Scots vote for independence, of course a deal will be done on the currency, because it’s not in London’s interests to have a rancorous relationship with Edinburgh.”
He was commenting after an unnamed UK government minister told the Guardian:
“Of course there would be a currency union”
A few days later the University of Glasgow’s professor of economics Anton Muscatelli - a former consultant to the World Bank and the European Commission, a current adviser to the House of Commons Treasury Select Committee on monetary policy, and former chair of an independent expert group for the Calman Commission on devolution - also said the UK government was bluffing, in a piece for the Financial Times explaining why refusing a currency union would be a reckless and irresponsible move:
“A successful currency union would actually be in the interest of both sides – and especially the rest of the UK.
The most damaging prospect to the rest of the UK from rejecting a sterling currency union is what it will do to its own trade and business activity. Whatever the political tactics involved, it would be tantamount to economic vandalism.”
No matter what happens after a Yes vote, whether the UK government agrees to a currency union or not (although the overwhelming likelihood is that it will), Scotland WILL keep the pound. Because of the nature of Sterling, this is one of the few aspects of the debate which can be absolutely, unequivocally guaranteed