A separate currency is the prudent option for an independent Scotland to give it the powers needed to manage any future financial shocks, according to economic experts.
The Scottish Government’s proposal to keep the pound in a currency union with the remainder of the UK would deprive Scotland of the powers necessary to adjust the exchange rate or interest rates to steer its way through another economic crisis, the experts said.
National Institute of Economic and Social Research (NIESR) has teamed up with the Economic and Social Research Council (ESRC) to assess currency options for an independent Scotland.
Scotland would start life in debt to the tune of £153 billion, although this is lower than the UK’s projected 101% for 2016-17, according to the experts.
NIESR director of macroeconomic research, Dr Angus Armstrong, said: “Countries throughout history have considered how you reduce your fiscal burden.
“You either tax people, spend less or sell your assets. We recognise that selling assets is politically difficult and sensitive, but it’s only because nobody is talking about the debt.”
There is no “free lunch” for Scotland whatever constitutional or currency option it chooses, as either way it is in for varying degrees of “painful” austerity, the experts claim.
“It would be prudent for the Scottish Government to retain the policy levers by introducing its own currency, which you would then tie to the pound.
“That, of course, is a complex thing to do and there are transitional risks,” Dr Armstrong said.