SCOTLAND would most likely have to create a new currency if it became independent, one of the UK's leading economists has warned.
Professor John Kay said the SNP's proposed currency union with the rest of the UK was the best option for an independent Scotland.
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But he said it would place such contraints on the country's economic policies that a separate currency should also be considered. It would probably then have to be adopted quickly to end uncertainty, he added.
Mr Kay, a former member of First Minister Alex Salmond's Council of Economic Advisers, insisted a new currency was "not a terrible outcome", adding: "It sounds more radical than it is."
Mr Kay is due to give a lecture on the economics of Scottish independence at Glasgow University today.
He will also use it to argue that an independent Scotland would have "no chance" of retaining a share of the UK's prized EU rebate, worth £135 to every household in the country.
Mr Kay believes Scotland could stay out of the Schengen free travel area, ensuring an open border with the rest of the UK would be maintained.
Under SNP plans, an independent Scotland would seek to join a monetary union with the rest of the UK to keep the pound.
In a major report last week, the First Minister's economic advisers acknowledged that it would require a formal deal with the UK Treasury on how much the government of an independent Scotland could borrow and spend.
Edinburgh-born Mr Kay said: "The best arrangement for Scotland would almost certainly be a monetary union but it would be quite difficult to negotiate terms that are consistent with the aspirations of independence.
"What the Treasury and Bank of England would offer is not going to be very generous. One has, at the very least, to think about the default option, an independent currency, and it is likely we would have to follow it. It's not a terrible outcome, it sounds more radical than it is."
In his lecture, the London School of Economics and Oxford academic will argue that "market expectations would begin to force events from the day a Yes vote was obtained".
He suggested a Scottish Government may have to set up a currency almost as soon as the idea was proposed, to prevent savers and companies moving funds out of the country.
However, Scotland would avoid joining the euro single currency in practice as "the EU would probably settle for some vague and indefinitely postponed aspiration that Scotland would participate".
Scotland should also be able to keep the UK's opt-out from charging VAT on items such as food, books and children's clothes, he will say. His view contradicts comments by referendum minister Nicola Sturgeon, who claimed this week that an independent Scotland would be able to keep all the UK's opt-outs.
The lecture, part of a series organised by the Glasgow Global Security Network based at the university, will also say an independent Scotland would take on a share of the UK's £1 trillion national debt.
Scottish Conservative deputy leader Jackson Carlaw said: "The Scottish Government seems to think it will be waved in by the Bank of England without any questions and given a prime seat on the Monetary Policy Committee.
"That privilege isn't afforded to any other separate state."
Finance Secretary John Swinney said: "Scotland will retain sterling after independence – that policy was backed last week by the Fiscal Commission working group as the most sensible and practical currency option, and it will offer flexibility for the Scottish Government to develop its own taxation and spending policies to boost growth, and address inequality."
Alistair Darling, head of the pro-UK Better Together campaign, said: "The fundamental point about a currency union is that both sides have to agree to it. Even if it can be agreed, Professor Kay makes it clear that what you would have is a situation where you would not be achieving independence at all."