The Scottish Government may have stuck rigidly to their claim that sharing the pound is in the interest of both Scotland and the UK but EY Scottish ITEM Club economic adviser Dougie Adams says creating a new currency could prove a necessary and better choice for an independent Scotland.
Adams currently works as an independent economic consultant based out of Edinburgh and is an advisor to the EY Scottish ITEM Club. He has also held economist roles for both the European Commission and Scottish Office as well as working as marketing and European business development director at Franklin Templeton.
Speaking to Fundweb, Adams argues that currency is by far the greatest concern at the centre of the current debate on Scottish independence. He says: “I think currency is the biggest issue. There are clearly huge uncertainties and so much to be negotiated that the whole thing will be a bit like peeling an onion.
“But the currency arrangements are definitely right up there and it is one that goes right to the heart of financial services. At the end of the day it is so important to know the kind of money that you’re going to be dealing with.”
The Scottish Government says a formal currency union in which the pound would be shared between Scotland and the rest of the UK is the “best option” for the independent country.
All three main UK party leaders disagree and have said that they will not agree to such a currency union. Scotland’s first minister Alex Salmond has since suggested that an independent Scotland could use sterling on a unilateral basis without Westminster’s permission.
However Adams believes that creating a new currency would actually be the best option for an independent Scotland because of the country’s reliance on oil.
“By a long way the best option for an independent Scotland would be a separate currency. You would start your own currency and seek to link it to sterling and that link might become very strong over time, ” he says.
“In theory a floating exchange rate would allow an independent Scotland to adjust more easily to fluctuations in the oil price which for some time to come will be an important influence on Scottish export receipts.”
But Adams also cautions that establishing a new currency would also throw up its own challenges and risks. He adds: “Of course that is not to say there is an easy path to such a currency given the challenge of redenomination and more importantly the impact on short-term capital flows that such a move would have.”
The Scottish Government has no plans in place to set up a new currency in an independent Scotland should it not get its preferred option of a currency union with Westminster.