Independent Scotland Could Lose The Pound

George Osborne has warned Scotland there is no guarantee it can retain the pound if it becomes independent.

The Chancellor said independence would force Scotland to adopt new currency arrangements, which would be a "very deep dive into uncharted waters".

The Scottish Government has outlined plans to keep the pound if the country becomes independent after next year's referendum.

But in a new report, the Treasury said the economic case for creating a "sterling zone" was not clear and cast doubt on whether a deal could be reached.

Mr Osborne, launching the report in Glasgow, said the analysis showed the imperative to agree a currency union would be less strong for the UK than for Scotland.

"Why would 58 million citizens give away some of their sovereignty over monetary and potentially other economic policy to give million people in another state?" he asked.

He added: "Could a situation where an independent Scotland and the rest of the UK share the pound and the Bank of England be made to work? Frankly, it's unlikely."

Scottish First Minister Alex Salmond is pushing for independence

With a currency union off the table, the only other options are for Scotland to unilaterally keep the pound, to create its own currency or to join the euro.

 "All of these alternative currency arrangements are less suitable economically than we have now for both Scotland and the rest of the UK," Mr Osborne said.

He added: "The conclusion is clear - the pound we share works well. The saying goes 'If it ain't broke, why fix it?' but I say 'If it ain't broke, don't break it'.

"The alternatives to the way Scotland now uses the pound are second best. Is second best really good enough for Scotland and for all our United Kingdom? We are better together."

The Scottish Government wants a "sterling zone" and economic experts there have concluded it is "sensible" and an attractive choice for the rest of the UK.

But the Treasury report said it "would only be possible if both an independent Scotland and the continuing UK could reach an agreement that satisfied both countries' economic interests".

It argues a formal sterling currency union would be "very different to the current arrangements and would be a profound economic change for both states".

Scottish banks currently issue their own sterling notes

An independent Scotland would "need to agree a negotiated set of constraints on its economic and fiscal policies", the report said.

It added: "In practice, this would be likely to require rigorous oversight of Scotland's economic and fiscal plans by both the new Scottish and the continuing UK authorities.

"Even with constraints in place, the economic rationale for the UK to agree to enter a formal sterling union with a separate state is not clear.

"The recent experience of the euro area has shown that it is extremely challenging to sustain a successful formal currency union without close fiscal integration and common arrangements for the resolution of banking sector difficulties."

The paper argues the "current currency and monetary policy arrangements within the UK serve Scotland well", describing the UK as "one of the most successful monetary, fiscal and political unions in history".

It concluded: "All of the alternative currency arrangements would be likely to be less economically suitable for both Scotland and the rest of the UK."

It also claims both the Scottish and UK governments would need to agree for the commercial banks in an independent Scotland to continue issuing sterling notes as part of a currency union.

The Treasury has said the role of the Bank of England, as the central bank of the UK responsible for issuing notes by all commercial banks, would have to be reviewed under independence.

Scottish Finance Secretary John Swinney condemned suggestions that Scottish banknotes could be lost under the SNP's plans as "insulting" and insisted they would be kept.

He also claimed that the pound was "every bit as much Scotland's currency as it is England, Wales and Northern Ireland's".

He said: "If this scare story is the best George Osborne can do in advance of his visit to Scotland then it betrays the utter weakness of his case."

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