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Economist warns independent Scotland may have to ditch pound

ALEX Salmond has come under fresh pressure over his currency plans for an independent Scotland after one of the country's leading economists said the country might have to ditch the pound in order the retain its crucial financial services sector.

In a report to be published today, Dr Angus Armstrong of the National Institute for Economic and Social Research warned an independent Scotland would struggle to bail out crisis-hit banks if it chose to use the pound without a formal currency sharing deal with the rest of the UK, a process known as sterlingisation.

The study, titled "Scotland's lender of last resort options," concluded there was "no credible solution" to the problem and suggested that under indepednence the UK's financial authorities would require important Scots-based banks using sterling, such as RBS and Lloyds, to relocate to the rest of the UK.

The study warned the loss of large chunks of the financial sector - which exports £11 billion of business, mostly to the rest of the UK - would hit an independent Scotland's balance of payments and prosperity.

The report concluded: "Part of the solution may require Scotland to have its own currency instead."

Dr Armstrong said a new currency backed by a central bank would let an independent Scotland guarantee deposits.

He added: "If you really believe we are going to be credible and have a more productive economy, what are you frightened of floating [a new currency] for?"

The report came as Alex Salmond faced a further barrage of questions about his Plan B for the currency if, as senior ministers have already warned, the UK Government rejects his favoured option of sharing sterling in a formal monetary union.

In a re-run of Tuesday night's dramatic televised referendum debate, Scots Labour leader Johann Lamont repeatedly challenged Mr Salmond to outline his preferred alternative to the currency union.

Referring to his government's independence White Paper, Mr Salmond said an independent Scotland had four options including the currency union proposal.

He ruled out one of them, the euro, and described a new, separate currency as "perfectly viable but not as good as keeping sterling".

He also said an independent Scotland could not be stopped from using the pound unilaterally.

Mr Salmond stressed if the UK was not prepared to agree a currency-sharing deal, it could not expect an independent ­Scotland to pay its share of Britain's £1.4 trillion national debt.

Such an outcome, he said, would be "extremely attractive" but "not a reasonable position to take" and he claimed it was not one the UK Government would let happen, faced with losing £5 billion a year in debt payments.

Suggesting a Yes vote would give him a powerful mandate to demand a deal with the rest of the UK, he told MSPs: "The reason why we are keeping the pound in a currency union and why we are so unambiguous about that is that we are appealing to the greatest authority of all — the sovereign will of the people of Scotland. It is Scotland's pound, and we are keeping it."

Earlier, Dr Armstrong had dismissed the idea an independent Scotland might refuse to shoulder a share of UK national debt. He warned the move would have consequences for the new state's ability to borrow and complicate talks to join the EU.

Meanwhile, Labour leader Ed Miliband will today repeat his opposition to a currency union.

In a speech to the Scottish Chamber of Commerce in Glasgow he is expected to say: "I want Scotland to keep the pound - by staying in the UK. I can't support a Eurozone-style currency union. We did not join the Eurozone for clear and correct economic reasons.

"It is for the same reasons the rest of the UK should not enter into a currency union with an independent Scotland. And that's why, as Prime Minister, I couldn't agree to a currency union."

lAround 160,000 viewers watched Wednesday night's repeat of the TV debate on the BBC Parliament channel.

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