Scotland may be left in a currency limbo if it votes for independence because it is uncertain if it could continue using the pound or immediately join the euro, British lawmakers warned on Friday. Uncertainty over what currency would be used after independence remains a major campaign issue just weeks before Scots vote in a September 18 referendum whether to leave the United Kingdom after 307 years of union with England.
Britain's three main political parties have ruled out a formal currency union, but Scottish nationalist leader Alex Salmond has said he is confident a deal would be done and that Scotland "cannot be stopped from keeping the pound". He has been coy about explaining how Scotland could continue to use sterling if it failed to secure a currency union, however, leaving him vulnerable to critics who say he has no "Plan B" for such an eventuality.
In a report which concluded that remaining part of the UK was in Scotland's best economic interests, the British parliament's Business Select Committee said the uncertainty following a vote for independence would damage Scottish firms. "Arguments based on aspiration rather than reality do little to advance the cause of Scotland and it is clear to our committee that the Scottish Government has failed to make the argument that Scotland would be better off economically as a separate state," said Adrian Bailey, the committee's chair.
Separately, the National Institute for Economic and Social Research warned that Scottish financial institutions could not be sure of access to emergency liquidity if Scotland carried on using sterling without Britain's agreement. Financial services account for 15 percent of Scottish exports. Some firms have said they would consider moving their headquarters from Scotland after a vote for independence.
NIESR, a leading economic think tank, said all potential lenders of last resort under an informal currency union were likely to prove unacceptable to an independent Scottish government on terms that would make them viable. The parliamentary committee spoke out as Ed Miliband, the leader of Britain's opposition Labour party, visited Scotland on Friday and called on Salmond's pro-independence Scottish National Party (SNP) to "come clean" about its currency plans. "What the SNP needs to come clean about is that there are big risks, big instability, whatever currency option they choose in an independent Scotland," Miliband told BBC radio.
"I believe that risk is going to be borne, not by the richest who can move their money around, but by working people. And it is a really important reason why alarm bells should be ringing," he said. John Swinney, the SNP's finance minister in Scotland's devolved government, countered that Britain would be forced to give an independent Scotland a currency union in return for its taking on a fair share of Britain's national debt.
"They cannot turn round to the electorate in the rest of the UK and say we are going to let the Scots go away debt-free from the United Kingdom, we are going to let them off from an annual cost of 5 billion pounds," he said. "That's why they will agree to a currency union after independence." If Scotland did plump for independence it would also have to re-apply to join the European Union.
The committee said the EU would require a separate Scotland to have its own central bank and would be unlikely to allow it to be in a sterling zone or to use a "shadow pound". "A protracted negotiation over Scotland's status within the EU also puts into doubt the possibility, in the short term, of adopting the euro. As a matter of urgency, the Scottish Government must now spell out its plans for an alternative currency for an independent Scotland," the report said.
The committee said it would be a "leap of faith" to believe an independent Scotland would automatically remain a member of the bloc or would be re-admitted quickly. "There would be a period of intense and complex negotiation," the report said. "There is a substantial risk that Scotland could be cut adrift in the short to medium term from its largest economic market. The impact of this on Scottish business would be significant."
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