Trade with Scotland may not be important enough to justify the risks of a currency union between a new independent country and the remainder of the United Kingdom, a Treasury Minister said today.
Sajid Javid told a Westminster Hall debate Scotland was much more dependent on the rest of the UK for the bulk of its trade than the other way around and cautioned against the risks of copying the eurozone model in the British isles.
Mr Javid said: "The UK accounts for 70% of Scotland's total trade, whereas Scotland accounts for 10% of the UK's trade. Scottish trade is important to the UK economy but it is not clear it is important enough to run the risk of recreating the problems in the euro area in the British isles."
But SNP Treasury spokesman Stewart Hosie told the debate cross border trade was a key reason why a currency union would be created if Scotland votes to become independent later this year.
He said: "The impact on the sterling balance of trade would be immediate were Scotland somehow impossibly forced not to be able to use sterling.
"The same applies to trade. The rest of the UK sells £60 billion in to Scotland. If we were forced to use a foreign currency and transaction costs were applied to that, that would imply a catastrophic loss to English businesses, additional costs the No campaign never mentions.
"Let's put this into context: in 2012, the rest of the UK sold into Scotland more than it did to Brazil, and South Africa, Turkey, Russia, India, South Korea and Japan - combined. Yet we hear from the No campaign they do not want us to use sterling even though that is impossible.
"Where would independence keeping sterling leave us? It would not imply foreign controlling our economy because the central bank does not control the economy. It works to a single 2% inflation target which we think is sensible.
"It would effectively leave us in Scotland in the same place as the rest of the UK - accepting the monetary policy discipline of an independent MPC (Monetary Policy Committee), accepting that discipline while leaving Scotland along with the rest of the UK in complete control of the rest of its social and economic levers."
Mr Javid's remarks come ahead of a speech by his boss, Chancellor George Osborne, in Scotland later this week.
It has been widely reported Mr Osborne is likely to rule out a formal currency union with Scotland if it becomes an independent country
And today Mr Javid rehearsed some of the arguments against such a plan.
He said: "The Scottish Government's proposal for a currency union without fiscal or political integration lacks any credibility whatsoever. It does make one wonder whether the Scottish Government actually does understand what the word independence means.
"The remaining UK, to manage the risks of the union, would need to set interest rates and need to maintain oversight of an independent Scotland's tax and spending plans. Indeed, a currency union would also be likely to undermine an independent Scotland's resilience and credibility.
"Just as a currency union isn't in Scotland's interests, it is very hard to see how it could be in the interests of the remaining United Kingdom. It would involve the remaining UK giving up an element of its economic sovereignty... which is something the public would feel very strongly about.
"It would increase the risk of having to bail out Scottish banks and the idea of putting the remaining UK's economy at risk because of another country's banks, just as we are getting our own banks into order would make no sense whatsoever."
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