AN economist who worked on the SNP’s Growth Commission has warned that an independent Scotland using the pound could lead to a “Greece-minus” outcome.
Speaking to the Daily Mail, Richard Marsh said “no credible economist would advocate sterlingisation as the policy of choice”.
In April this year, following a robust debate, delegates at the SNP conference forced the leadership to speed up their timings over the adoption of a new, separate Scottish currency.
While Nicola Sturgeon (below) and her Finance Secretary Derek Mackay had wanted the currency of an independent Scotland to “continue to be the pound sterling” until a separate currency “can be safely and securely established,” party members voted to replace the pound “as soon as practicable”.
Timing will depend on six economic tests set out in the Growth Commission. These include an independent Scotland having a “sufficiently strong and credible fiscal position in relation to budget deficit and overall debt” before a separate currency is introduced.
Marsh, who is also a member of the Scottish Government’s expert group advising on economic accounting, said that as soon as practicable might not be soon enough.
He told the paper that sterlingisation “would involve Scotland accepting monetary policy as set by the Bank of England, including interest rates”.
Marsh added: “At present, the Bank of England takes Scotland’s economy into account when adjusting monetary policy.
“It would no longer have to do this if Scotland opted to use the pound sterling outside a formal currency union.
“The Greek and German economies provide a stark example of the need for monetary policy to reflect and support a nation’s economic prospects.
“This is while Greece is part of a formal currency union so sterlingisation would be at best a ‘Greece-minus’ outcome.”
On using sterling without the Treasury’s consent, Marsh said that while there were examples of other countries using the dollar, these were “micro-states” and Scotland was “hardly comparable”.
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He said: “A small number of larger countries have also adopted the US dollar but this has usually been in response to an economic collapse, with dollarisation used to curb inflation and promote economic stability.
“These examples involve developing countries reliant on agriculture. By contrast, Scotland has a highly developed economy, with a sophisticated financial services system and broad range of goods and services exported to international markets.”
He went on to say that sterlingisation should “only be considered as an option of last resort and would still pose significant issues for Scotland’s economy”.
But he said that if options of last resort were being considered then it may be better to consider “euroisation” in the short term while a new Scottish currency is established.
He added that the better option would be to to establish a new Scottish currency as early as possible or “reach an agreement for a currency union with the Treasury”.
Responding to Marsh’s comments, an SNP spokesman said: “Scotland’s currency on day one of independence will be the pound.
“We support adopting an independent currency as soon as practicable – but only when it is in the interests of the Scottish economy to do so and will be guided by the six tests outlined by the Growth Commission.”
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