An independent Scotland which continued using the pound without a formal monetary union in place would be vulnerable to “bouts of hyperinflation” and would leave the country comparable to Panama, George Osborne said today.
Appearing in front of the Commons Scottish Affairs Select Committee, the Chancellor conceded that Scotland could unilaterally adopt the pound without the blessing of the UK Government if it votes for independence in September.
But he added that this so-called “sterlingisation” approach would be unsustainable, citing the use of the US dollar in Panama, which he said needed “more IMF bailouts than virtually any other country in the world”. Similar experiments with the Deutsche mark and euro in Montenegro resulted in hyperinflation, he said.
The Chancellor said: “The idea Scotland could adopt the Panama or Montenegro approach is just not credible. It wouldn’t last, it would be pretty disastrous for Scotland to even try that.”
Earlier, Mr Osborne reiterated the Government’s “no ifs, no buts” opposition to any formal currency union between an independent Scotland and the rest of the UK. The three main Westminster parties have all ruled out a deal being done in the wake of a Yes vote.
“The nationalists’ preferred plan is to replace our UK pound with something very different to what we have now, an unstable eurozone-style currency union which wouldn’t work at all for Scotland or the UK,” he said.
“It’s a plan where the nationalists want to be independent but make Scotland’s economic policy dependent on another country in which it no longer has any say or representation. That’s why it’s a plan that simply doesn’t make sense.”
However, the Scottish government rejected Mr Osborne’s claim, saying a currency union would be inevitable post-independence. Finance minister John Swinney said in a statement: “A currency union is the choice of business in both Scotland and the rest of the UK, and it is clear that the markets will expect the UK to negotiate constructively and in good faith. Anything else would simply be damaging to the economy of the rest of the UK.
“The reality is that on this issue, like so many others George Osborne is on the wrong side of the politics, the wrong side of the economics and the wrong side of the people of Scotland.”