From the BBC:
The Bank of England governor has said an independent Scotland would need to give up some power to make a currency union with the rest of the UK work.
Mark Carney said such a move, proposed by the Scottish government, "requires some ceding of national sovereignty". He also said the risks of not having a strong agreement had been demonstrated by problems in the Eurozone.
There are plenty of examples of countries using "somebody else's" currency, i.e. countries not actually in the official Euro-zone which use the Euro or whose currencies are pegged to the Euro.
For sure, notes and coins issued by those countries might not be accepted as legal tender in the Euro-zone itself, but so what? We always had that with Scottish bank notes in the UK, and this is a bit of a red herring as 99%* of transactions by value are entirely electronic nowadays.
Would Scotland have to pay a slightly higher interest rate on GBP-denominated borrowing that England and Wales, or a higher interest rate on EUR-denominated borrowing than Germany or The Netherlands?
Quite possibly, that depends entirely on Scotland's credit rating. We know that interest rates on government debt are different in different countries in the Euro-zone. That's no different to UK businesses all using GBP but paying different interest rates on their borrowings.
If Scotland reduced public sector waste, ran a sensible tax system, got their economy going and didn't run large deficits, then they'd end up being able to borrow more cheaply than England & Wales or the PIIGS, that's for them to sort out.
The size of the country or economy plays little role in this. The Netherlands has lower borrowing costs than Germany because they run a tight ship. See also: Switzerland.
But what we have learned is that currency unions benefit the wealthier, central and more productive regions and make things even worse for the poorer, peripheral and marginal regions, and much the same applies to using a common currency, even if there is no formal arrangement in place.
So basically an independent Scotland can use whatever currency it wants, GBP, EUR, SCP, USD, that is a relatively minor decision (see also: Vaclav Klaus' comment about sorting all this out in an afternoon when Czechosovakia was split up).
All that matters is whether Scotland is run properly. If they mess up, then whichever currency they use, it will end badly for them.
* Made-up figure, I couldn't be bothered looking it up.
Thursday, 30 January 2014
From the BBC: