• Text size      
  • Send this article to a friend
  • Print this article

iScotland would need its own currency, Adam Smith professor tells MSPs

A new currency is the only viable economic option for an independent Scotland, an economics professor has told MSPs.

The position is at odds with the Scottish Government's aim to establish a formal currency union with the rest of the UK.

Ronald MacDonald, the Adam Smith professor of political economy at Glasgow University, is among five academics due to give their views to MSPs on Holyrood's Economy Committee today.

In a letter to the committee, he wrote: "The inescapable logic of a study of the appropriate currency for an independent Scotland is that it would have to have its own currency.

"If Scotland wants to stay part of a formal sterling zone then it clearly needs to internalise its supply side shocks with the rest of the UK and that can only happen in the political and monetary union we have at the moment.

"The only credible alternative that an independent Scotland faces is to have its own currency."

A sterling zone would be a "very heavy millstone" around Scotland's neck, he warned.

The dominance of oil in the Scottish economy would create potential for "shock" to the economy in the rest of the UK, he told the committee.

MSPs also heard in advance from Professor Anton Muscatelli, the principal of Glasgow University, who takes a different view.

Far from being a "millstone", a sterling zone could work well for Scotland and the rest of the UK, he argued.

Writing in a "personal capacity", he told the committee: "My view is that a sterling currency union has benefits which clearly outweigh the costs for both Scotland and the rest of the UK."

The position has been ruled out by Chancellor George Osborne and the main parties at Westminster.

Since the intervention last month, First Minister Alex Salmond has faced growing calls to set out his "plan B" for currency.

Prof Muscatelli suggests a new currency should be the fall-back option.

"There is no doubt that Scotland could launch a successful currency, and this would be the most obvious plan B if a sterling union cannot be negotiated," he wrote.

"Even if a currency union can be successfully negotiated, it would be in Scotland's interest to consider its longer-term options by building the necessary institutions to have its own monetary policy."

Adopting the pound without formal backing would be bad for both states, he said.

In Scotland, there would be no access to a lender of last resort facility from the Bank of England.

"It would be a potentially unstable currency regime where external shocks could not be offset through monetary policy," he continued.

Drawing attention to his role at the university, he told the committee he will not take a position on the merits of independence or not.

"As an educational and charitable institution, the University of Glasgow takes a neutral position on the independence referendum," he added.

Contextual targeting label: 
Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

218839