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Should Scotland Leave the Pound Zone?

PRINCETON – As Scotland prepares for this month’s referendum on independence, the United Kingdom – indeed, all of Europe – must brace itself for the impact of a successful bid. Scottish independence would revolutionize the British and European constitutional frameworks, and give a tremendous boost to other European separatist movements, from Catalonia to northern Italy. The economic impact of independence, however, is far less certain.

Advocates of independence have long insisted that they are motivated primarily by the distinctiveness of Scottish identity. But Scotland’s history and traditions, while undoubtedly its own, have been shaped by centuries of interaction with England and other parts of the British Isles.

The more immediate issue for Scots is money. The question of whether an independent Scotland could or should continue to use the British pound has dominated discussions over the last few months of the referendum campaign. The outcome – for Scotland, the UK, and Europe – could vary widely, depending on which path Scotland chooses.

So far, Scottish nationalists have insisted that an independent Scotland would retain the pound. But, given how much easier it would be to make the case for a separate currency – not to mention the fact that Chancellor of the Exchequer George Osborne has explicitly rejected Scottish First Minister Alex Salmond’s proposed currency union – such declarations amount to an own goal.