THE SNP’s plan to continue to use the pound after independence before later switching to a new currency would be a “hugely risky experiment”, it has been warned.
These Islands, a pro-union think tank, spoke to economists and currency experts about the proposal to use the pound “unofficially”, outside of a formal currency union with the remaining UK.
The SNP’s Sustainable Growth Commission, its blueprint for independence published in 2018, suggested keeping the pound until six tests were met for any new currency.
But Dame DeAnne Julius, one of the founding members of the Bank of England’s Monetary Policy Committee, said: “I think it would be a hugely risky experiment for Scotland.
“The evidence one could look to for this kind of arrangement are places that are quite different and at a different development level – places like Argentina – and it’s impossible, I think, to find any place that is a success story undertaking this route of political independence using a currency issued by another country.”
Professor Jeffrey Frankel, a Harvard University economist who served on the US President’s Council of Economic Advisers during the Clinton administration, said: “I think Scotland would have to undergo a profound change and would probably have to make some difficult economic adjustments.”
Professor Alan Sutherland of St Andrews University said an important element of currency and the banking system “is what the borrowing and lending terms available to customers are – what level of risk judgements lenders make when granting credit”.
He added: “Some borrowers will just not get mortgages anymore, some businesses will not get loans, rates of interest will be much higher. And some products will simply not be offered.”
Elsewhere, Professor Cédric Tille, a member of the Bank Council of the Swiss National Bank, warned an independent Scotland could find itself seeking a financial bailout from the International Monetary Fund (IMF).
Kevin Hague, chair of These Islands, said the comments “should be a wake-up call to anyone inclined to believe the argument that leaving the UK’s currency area can be achieved at no risk”.
Analysis by academics at the London School of Economics’ Centre for Economic Performance previously suggested independence could hit Scotland’s economy up to three times harder than Brexit.
SNP depute leader Keith Brown said: “Scotland will continue to use the pound at the point of independence, establishing an independent Scottish currency as soon as practicable through a careful, managed and responsible transition when an independent Scottish parliament chooses to do so.
“Scotland is a prosperous and successful nation but we can do so much more by matching the success of other similar-sized advanced independent countries which enjoy control of their own economic policy.”