Mark Carney suggests Scotland to give up some sovereignty for currency union

This article was last updated on April 16, 2022

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Bank of England Governor Mark Carney has said on Wednesday an independent Scotland would have to give up some of its national sovereignty if it wishes to enter a stable and prosperous currency union with the remainder of the United Kingdom.

In a speech to business leaders in Edinburgh ahead of a Scottish independence referendum, Mr. Carney has indicated that the eurozone crisis is evident that countries sharing a currency had to co-ordinate their economic policies.

BOE governor’s remarks highlight the limits to a fully independent Scotland’s fiscal autonomy as a probable cost of creating a robust currency union with the Britain.

Mr. Carney has told currency unions will require banking unions and “shared fiscal arrangements” because “problems in one country are very likely to spill over to others”.

“For example, the threat of default by one country may trigger a generalised crisis, particularly if the liabilities of the crisis country are held by the banking system of the broader currency area.

“It will be in the interests of other countries in the union to bail out a country in crisis, and that reduces the incentives for countries to run their finances prudently in the first place.

“At a minimum, this ‘moral hazard’ problem suggests the need for tight fiscal rules, to enforce prudent behaviour for all in the union, although credible sanctions for breaking those rules are hard to develop.”

Scotland’s First Minister Alex Salmond has said the meeting went “extremely well” and productive.

Scottish people will be entitled to vote on Sept. 18 regarding the choices of whether to stay in the U.K. or to dissolve a 300-year-old union between the Scottish and English crowns and declare Scotland independent.

In the above scenario, one of the major issues in the referendum campaign is whether or not an independent Scotland would use the pound as its currency and how such a monetary union would be administered.

The Scottish government has already shown the willingness to retain the pound in case of a ‘Yes’ vote for independence in September’s referendum arguing that this would also be in England’s interests.

While U.K. government seem not interested as British Prime Mister David Cameron’s official spokesperson has told today: “it is highly unlikely that the U.K. would want to enter into a currency union in the event of an independent Scotland”.

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