THE SNP’s policy of keeping the British pound after independence would make it “much harder” to join the European Union, a financial expert has said.
Dr Iain Hardie, a visiting lecturer at the University of Edinburgh, said that the proposal to be part of an informal currency union with the rest of the UK after a Yes vote was a “very rare” option for nations to choose.
“There’s a reason it’s a rare option,” he told the European Conversations podcast.
What is the SNP’s policy on independence and currency?
In October, then first minister Nicola Sturgeon laid out the SNP’s policy on currency in a white paper published by the Government.
The idea was to be part of an informal currency union, where Scotland continues to use the pound sterling for an indefinite period, but without any say at the central bank or any control over things like interest rates.
The white paper stated: “We propose that, on independence, Scotland would continue to use the pound sterling for a period before moving to our policy of adopting a Scottish pound.”
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It said the change would take place “as soon as practicable”, acknowledging that it meant “many aspects of monetary policy would continue to be set by the Bank of England”.
Hardie said this policy represented a “very substantial change” from the one laid down by Alex Salmond’s SNP ahead of the 2014 referendum.
At the time, Salmond (below with Sturgeon) had argued for a formal currency union, where Scotland would continue to use sterling but also have representation in the Bank of England post-independence.
Hardie explained that under current SNP policy: “We would continue to use sterling as an independent country, but we would not have the protection, either for financial stability or for any other monetary policy reasons, of Bank of England action.”
He went on: “If there was a situation because of a shock specific to Scotland that necessitated [action such as quantitative easing], the Scottish Central Bank would not be able to do that.
“The Bank of England would only have the incentive to do that if it thought that it was in the interests of the rest of the UK economy.”
Hardie said there were “plenty of scenarios” where that could happen, “particularly once you have independence”.
Dr Kirsty Hughes, the founder and former director of the Scottish Centre on European Relations, asked Hardie if an independent Scotland could join the EU if it was using sterling for a “temporary but indefinite” period.
“Economically, I think it would be a much harder thing to do,” Hardie said.
Hughes said that she did “not think it’s impossible, adding: “But you can’t say it’s not a problem. It is a problem.”
Hardie said that the best and most credible approach would be to have a Scottish currency in place on the day of independence.
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He said: “That doesn’t mean there’s not extensive use of sterling in the Scottish economy over a probable protracted period …
“Probably for a very extended period, a lot of individuals and certainly companies will keep accounts in both currencies.
“What you’re aiming for is, over time, the balance of what we keep in Scottish pounds and what we keep in UK pounds shifts in favour of UK pounds. That will be an extended transition period, definitely.”
He further called for a more honest debate over the nature of the informal currency union being proposed by the Scottish Government.
The Edinburgh lecturer said: “Once you say ‘well nothing’s going to change between before and after and we’re going to continue to use sterling’, you’re already going down a process of not being fully honest with people about the nature of an informal currency union.”
You can listen to the full conversation on the European Movement in Scotland’s European Conversations podcast.
