One odd element of the Scottish independence movement’s drive for autonomy has been the Scottish National Party’s argument that an independent Scotland could enter into a currency union with the remainder of the United Kingdom. George Osborne says no way and the opposition Labour Party seems to agree.
That strikes me as very sensible. Of course the United Kingdom can’t prevent Scotland from adopting the pound as legal tender. But it would make zero sense for the U.K. to assume joint responsibility for monetary policy with a much-smaller adjacent country that just declared independence in part to keep more North Sea oil and gas revenue for itself.
But it’s worth saying that the Sterling Union option makes no sense from a Scottish perspective either. The old answer to the Scottish currency question used to be that Scotland would use the euro just like Ireland or Finland or any other European country trying to make a statement. The economic disaster of the European monetary union has taken some of the sheen off of that. But the problems of the eurozone are an inherent problem with any kind of currency union. Right now if Scotland is hit by some kind of Scotland-specific adverse economic shock, British monetary policy won’t really respond to that because Scotland is small relative to England. But fiscal integration between Scotland and England ensures that the shock will be cushioned through fiscal transfers.
An independent Scotland won’t be able to count on that. Which means an independent Scotland would need what most independent countries need—an independent central bank and its own Scottish pound (or whatever you want to call it). If that’s too big a lift, then that just goes to show that Scottish people don’t really want to be independent (a reasonable option).
Note that precisely because the European monetary union is a kind of bad idea, this becomes an easier question for Catalan or Flemish separatists. Having the same monetary policy in Barcelona and Berlin isn’t a good idea, but it’s equally bad whether Catalonia is part of Spain or independent.