Q How significant is a rejection of a currency union?
A Very. Up until now, Coalition ministers have said it would be "highly unlikely" the remaining UK would sign up to a currency union with an independent Scotland. But on the back of the comments from Mark Carney, governor of the Bank of England, and Treasury analysis, the SNP proposal has been rejected out of hand by not only George Osborne for the Conservatives but also Ed Balls for Labour and Danny Alexander for the LibDems.
Q Why?
A Nick Macpherson, the Treasury's Permanent Secretary, set out the reasons in a memo to the Chancellor, which, unusually, he published; he did so because it sets out in clear terms the case against a currency union.
The reasons for a No to currency union are: the SNP have indicated it would be only temporary, which would not secure market confidence and put up borrowing costs; there is too big a risk for UK taxpayers to underwrite Scotland's banking system given its large size relative to its economy; the UK economy is almost 10 times the size of Scotland's, so the UK taxpayer would bear an unacceptably high risk - the UK could bail out Scotland but Scotland could not bail out the UK; over time the economies of the two countries would become "increasingly misaligned" and, because of different economic priorities, a currency union would become intolerably strained as Scotland would object to UK priorities.
Q The SNP says the triple alliance is bluffing, is it right?
A Time will tell but one Coalition source noted: "If it is, it's some bluff." The Coalition knows a crucial plank of Alex Salmond's independence blueprint is the currency union proposal. UK Government ministers now feel the First Minister is looking like King Canute; his approach is unsustainable. At some point, he will have to announce a Plan B.
Q Could he come up with one?
A Yes but it is not easy.
The alternatives are: join the euro; but given the crisis across the water, Scots would be reluctant to do this just yet. Create Scotland's own currency. Or use the pound as a floating currency, so-called dollarization.
The problems with the latter two are of security and stability.
Mr Salmond is in favour of a currency union because the Bank of England would stand guarantor if things went pear-shaped again.
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