Backing Scotland’s Currency – Foreign Exchange Reserves for an Independent Scotland

Overview —

Examining how an independent Scotland could back and defend a Scottish currency.


Peter Ryan

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The successful management of an independent country’s currency is often tied to its ability to raise and maintain an adequate level of foreign currency reserves. These reserves would be used to stabilise the currency’s exchange rate, protect against speculative attacks on the currency and service debt obligations, amongst other uses. In the case of Scottish independence, it will be important to show that sufficient reserves can be established quickly enough after the launch of a new currency to ensure its stability. It is the purpose of this paper to demonstrate that this proposal is viable.


― The size of a country’s foreign reserves are very much dependant on the policy and history of a country and there is a substantial spread of holdings across countries ranging within the European Union from 5.69% of GDP in the UK, through 11.96% in Sweden, up to more than 40% of GDP for countries like Bulgaria or the Czech Republic.

― For the purposes of this paper, a more typical sum of 20% of GDP shall be demonstrated, which for Scotland is approximately $40 billion (approximately the same value of foreign exchange reserves as Denmark).

― $16.2 billion may be secured through a reasonable division of the UK’s foreign exchange reserves under a debt and asset negotiation.

― £4.462 billion worth of hard Sterling currency is in circulation within Scotland. If half of this is converted into the new Scottish currency and the Sterling held by the Scottish Central Bank, $2.9 billion may be raised for the foreign reserve. An equivalence between the new Scottish Currency and Sterling over the transition period will ensure prices initially stay the same.

― $13 billion would be raised via a foreign exchange swap with the Bank of England to aid the mutual stability of both the economies of Scotland and the rest of the UK.

― €8 billion Euros ($8.8 billion) will be raised via the issue of a Euro bond. Funds raised will be partially converted into other reserve currencies such as Yen and Renmimbi.

― In total, $40.23 billion can be feasibly raised to support an independent Scottish currency.

― The costs of servicing the debt accrued by Scotland for these reserves (approximately £70.2 million per year) will be substantially less than the current annual contribution by Scotland to the UK’s foreign reserves (£500 million per year) which are being built up by the UK government to bail out the City of London in the event of another crash.

― Several scenarios are outlined regarding the ownership of currently nationalised banks such as RBS. Assuming sufficiently regulatory oversight in no case could it be expected that Scotland would bear the full burden of banking losses incurred outside of Scotland

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