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Scottish Currency Options Post-Brexit

Overview —

The decision of the UK to leave the EU has changed the baseline assumptions about many aspects of politics.

This paper re-opens and re-examines the case for each of Scotland’s plausible currency options in the event of independence and weighs the pros and cons of each.

The paper concludes that only the option of Scotland launching a new currency gives sufficient control over macroeconomic and fiscal power and thus should be the policy for any future independence campaign.

Credits—

Dr Craig Dalzell

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It is widely acknowledged that one of the weaker aspects of the 2012-14 Scottish independence campaign was the debate around currency. The strategy of adopting a Sterling union with the rest of the UK, even after such a union had been publicly dismissed by the pro-Union advocates, was deeply damaging in terms of both confidence in the pro-independence campaign itself and in uncertainty about the future of an independent Scotland.

In the wake of the 2016 EU referendum result, a second independence campaign has been deemed “highly likely” to take place within the next few years. It is vital then that the questions which the 2014 campaign could not answer are addressed now, before the second campaign is launched.

This report seeks to take this opportunity to further the currency debate by explaining the concepts required to fully understand the details of the debate as well as laying out the options that an independent Scotland could reasonably face.

KEY POINTS

―Countries rarely have full control over all aspects of currency management simultaneously. Compromises must often be made, though different countries arrive at different solutions to those compromises.

― Setting up a new currency, if an independent Scotland chooses to do so, will involve planning but the steps involved are well understood and opportunities arise for public involvement in some of them, particularly design of new notes and coins.

― Currency options discussed include a formal currency union with either Sterling or the Eurozone; Unilateral use of either currency; or a new Scottish currency, dubbed the £Scot, managed under various options of fixed, flexible or floated pegs.

― Whilst, economically, no single option is likely to be significantly better or worse than any other — merely different — the political weight tends towards the recommendation of a newly independent Scotland adopting an independent £Scot, initially pegged to Sterling but with the option of moving, changing or floating the peg as and when required or desired.

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