How Scotland Can Keep the Pound

By: Eamonn Sheridan

According to UK chancellor George Osborne: “If Scotland walks away from the U.K., it walks away from the U.K. pound” But ... "Osborne is just wrong,” says Steve Hanke, professor of economics at the Johns Hopkins University. “There is a viable option that is easy to implement.” In the simplest terms, Scotland would peg the new Scottish pound to Sterling one-for-one It would be British pound, for all intents and purposes and there would be little that Osborne can do to stop it “Hong Kong is an example where they have managed fabulously well,” says Peter Rodriguez, professor of business at the Darden Graduate School of Business in Charlottesville, VA The trick is to link the currency with one that has a closely related business cycle There are some downsides: First, Scotland would cede monetary policy to the Bank of England Marc Chandler of Brown Brothers Harriman in New York points out, that may not be that big a deal. “To what extent is the Bank of Canada able to act independently of the Fed?” he asks. Not much. A bigger issue for some would be that there would be no lender of last resort for the commercial banks ...  but if it meant banks avoided risky bets expecting the government to save them, then that might not be such a bad thing. --- This all presupposes the Scots want to keep the pound, of course ... More