UK Think Tank Says Scotland Could Use Pound Without Permission

An independent Scotland that carried on using the pound without the permission of the rest of the UK would have a stronger economy than it does now, a free-market thinktank said on Thursday.

The Adam Smith Institute said the country would not only survive but thrive outside of a formal currency union provided there were changes to the banking system to inject competition and reduce risk-taking.

Adding to the political debate between the yes and no camps about the currency regime for a post-independent Scotland, the ASI said the nationalist leader Alex Salmond should follow the example of Panama, which uses the US dollar as its currency and does not have its own central bank.

Sam Bowman, the ASI’s research director, said Scotland should adopt a two-pronged approach – unilateral use of the pound together with the removal of protections for banks that allow them to engage in risky behaviour without suffering the consequences.

He added that the thinktank’s proposal for “adaptive sterlingisation” would allow Scottish commercial banks to issue promissory notes in unlimited quantities provided they were backed by reserves of pounds, dollars, gold, or even cryptocurrencies such as Bitcoin. The report, called Quids In, said this approach chimed with Scotland’s own banking history in the 18th and 19th centuries.

The currency question has been at the heart of the independence debate. The yes camp has said it would continue using the pound after independence while the no side has said Scotland will not be allowed to remain part of a currency union.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza