GLOBALLY RESPECTED ECONOMISTS WARN OF DANGERS TO SCOTLAND OF STERLINGISATION
08 February 2021
Some of the world's leading economists and currency experts have issued stark warnings of the dangers an independent Scotland would face after leaving the UK's sterling currency zone.
Speaking to These Islands for an in-depth report on the currency issue, Dame DeAnne Julius, a founding member of the Bank of England's Monetary Policy Committee and a former chief economist at British Airways and Shell, described Nicola Sturgeon's plan to continue to use the British pound outside of the offical sterling currency zone or – 'sterlingisation' – as "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," said Julius.
Professor Cédric Tille, member of the Bank Council of the Swiss National Bank and Head of the Bilateral Assistance and Capacity Building for Central Banks Programme at the Graduate Institute Geneva, warned the new state could find itself seeking a financial bailout from the International Monetary Fund (IMF). "Looking at the massive Scottish fiscal and current account deficits, my advice to the new prime minister, should the country split off, would be to address these structural challenges or develop good links with the IMF, because she or he might well need their assistance in the future," said Tille.
Harvard University economist Professor Jeffrey Frankel, who served on the US President's Council of Economic Advisers during the Clinton administration and has published extensively on exchange rate regimes, said: "I think Scotland would have to undergo a profound change and would probably have to make some difficult economic adjustments."
St Andrews University's Professor Alan Sutherland warned that sterlingisation would have serious impacts on the Scottish banking system. "Some borrowers will just not get mortgages anymore, some businesses will not get loans, rates of interest will be much higher," he said.
Commenting on the report, Kevin Hague, Chairman at These Islands, said: "These warnings come from some of the world's most respected macroeconomics and currency experts, and 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."
The full report can be read here.
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