Unsurprisingly, a Treasury report issued this morning suggests an independent Scotland will have problems with its currency. Unsurprising because the Westminster government is hostile to independence, but also because the problems are real and shouldn't be glossed over.
Scotland has four choices. Keep the pound, either in a full fledged currency union or on an informal basis (much as Panama uses the dollar); join the Euro; or float its own currency.
A currency union is possible, but would require Westminster's agreement. I shudder to think of the excoriating demands Westminster would make, but to protect sterling HMG would have to have strict control over Scotland's spending and borrowing. There would also be the small matter of the Bank of England being Scotland's lender of last resort.
Using the pound on an informal basis would give Scotland no say in Bank of England base rates, and would deprive it of a lender of last resort.
The problems of currency union being writ large in the dole queues of southern Europe, Alex Salmond has set his face against Euro membership; but it's quite possible that the EU would make adoption of the currency a prerequisite of joining the union, which the Nationalists desperately want to do.
And then there's the groat. Putting aside the expense of setting it up, a new Scottish currency would lead to higher trading costs, and the volatility of its exchange rate would lead to fluctuations in domestic wages and prices.
None of these options is easy. Opting for currency union is fine in theory, but, awkwardly for the Nationalists, leaves Westminster in a position to dictate whatever terms it likes. All these solutions, apart from the groat, would probably leave Scotland with less control over economic policy than it has at the moment. What kind of independence is that?
No, if I were Alex Salmond I'd be urgently researching the Bitcoin.
