News Column

Salmond's key advisors split over independent currency

February 15, 2014

Andrew Whitaker

MEMBERS of a commission set up by Alex Salmond to examine currency options were last night divided on what Plan B could be adopted in an independent Scotland after the SNP's plan to share sterling was ruled out by Westminster.The Fiscal Commission Working Group said keeping sterling as the currency in an independent Scotland would be "sensible" and an attractive choice for the rest of the UK.However, yesterday members of the commission told The Scotsman that alternatives to a sterling zone with the rest of the UK should be considered, after the three main unionist parties said they would block it.The group of experts is divided on what Plan B ministers could examine after Chancellor George Osborne said the SNP's plan would "not work" and "was not going to happen".Sir James Mirrlees, a Nobel prize-winning economist, suggested an independent Scotland would have to look at the "alternative of a Scottish pound" separate to sterling.The University of Cambridge professor suggested the alternative would see Scotland launch its own central bank and borrow at a higher rate to protect the new Scottish pound.However, Professor Andrew Hughes Hallett, a leading economist, who also sat on the fiscal commission, insisted there was "nothing" Mr Osborne could do to prevent an independent Scotland using the pound.However, the professor, who works at both St Andrews and Harvard universities, said continuing to use the pound outside a formal currency zone could leave an independent Scotland with no say over the "monetary policy-making process".Mr Salmond has accepted an independent Scotland will have a range of currency options, but insisted he will not give up on his plan of sharing the pound in the event of a Yes vote.An independent Scottish currency - the unilateral use of the pound or joining the euro - remain "viable options", but a shared sterling zone would be the best option for Scotland and the remainder of the UK, Mr Salmond said.A report from the group of experts, which included world-famous economist Professor Joseph Stiglitz, concluded sharing a sterling zone was in the "overwhelming economic interests" of Scotland and the UK due to the close business links between the two nations.Sir James, also a professor at the Chinese University of Hong Kong, said a viable Plan B would be a new Scottish currency, as he claimed it would deliver similar benefits to a sterling zone.However, the economist warned the currency would have to be pegged to the pound to prevent inflation rising sharply.Sir James said: "It would probably require some borrowing initially, at a rate a little higher than UK's current borrowing rate, but initially lower than the rate of inflation, so not very expensive; and it has the advantage of somewhat greater policy flexibility in the longer run."However, Prof Hughes Hallett backed Mr Salmond's claim that a currency union remained viable option.He said: "There is nothing that Mr Osborne can do to stop an independent Scotland taking sterling if she chooses to do so. You can debate the wisdom of such a move, but it still is, and will, remain an option."What is at stake here is whether Scotland could be allowed to have an input into the monetary policy-making process or not in a more advanced currency union than the one we are already in. That is quite a different question."Other commissioners, Prof Stiglitz, economist Frances Ruane and the group's chairman, businessman Crawford Beveridge, were unavailable for comment last night.

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Source: Scotsman, The (Scotland)

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