I've been arguing for some time that the issue of which currency an independent Scotland would use is a serious stumbling block for the Nationalists, and today comes a report from the National Institute for Economic and Social Research which bears this out. You can find Scotland's Currency Options on the internet, but for the time-strapped they've produced a really good cartoon which summarises the arguments here.
It's a measure of how far the arguments have come that the SNP has abandoned any thought of joining the Euro, and the NIESR doesn't even consider this. Alex Salmond currently says Scotland will keep the pound, either in an informal or formal currency union, but as the NIESR points out, this is fraught with difficulties. In either case, control of interest rates would be retained by the Bank of England, without regard to economic events in Scotland. In a formal union, the BoE could only agree to act as lender of last resort if Scotland agreed to spending plans endorsed by Westminster. What price independence then? In an informal union there would be no lender of last resort, with damaging consequences for the rate at which Holyrood could borrow on the money markets. The NIESR thinks the best option might be for Scotland to have its own currency, something I've argued before here. There are difficulties with this too, but at least Scotland would be able to control its own interest rates, print money and act as lender of last resort.
The NIESR also argues that Scotland will be saddled with a formidable amount of debt post-Independence, and that selling its oil revenues to the rest of the UK would be a good way of paying it down. Little though I like Salmond, I wish him luck selling that argument to the Scots electorate.
All of this is I think chastening for the SNP. I don't like nationalism much - an unholy mixture of sentimentality and fascism - and this big Romantic idea, like many such, flounders in the face of brute economic reality. That doesn't mean the Yes campaign won't win. It just means that if it does, stupidity (and dislike of the English) will have trumped commonsense.
On the same Youtube page as the NIESR cartoon is a short video of Nigel Farage on Question Time. In it Farage makes the point that by becoming independent Scotland would merely be swapping the Westminster yoke for the Brussels yoke. This might be true if Scotland joined the Euro, but it looks as though even if it keeps the pound the Scots would still be tied to Westminster's apron strings.
