Scotland and independence – currency, banking and financial issues

Author: Charles Proctor

As is well known, Scotland is due to hold a referendum on independence from the remainder of the United Kingdom on 18 September 2014.

Aside from the heated political debate on this issue, there are numerous legal and technical issues which, over recent months, have moved towards the centre stage. For example, the Scottish Government has argued that, on independence, it would automatically become a Member State of the European Union by way of “partial succession” to the UK’s existing membership. In terms of a legal analysis, this is extremely doubtful, and it is probable that Scotland would have to negotiate with the EU on the basis that it is a new applicant for membership.

But, in spite of obstacles of this kind, it is clear that independence would give Scotland the freedom to manage its own economy in a variety of ways, e.g. through taxation, borrowing, welfare and employment measures. But monetary policy is also a very important instrument of economic management and, as a result, the choice of currency arrangements for a post-independence Scotland is a matter of critical importance.

On 23 April, HM Treasury published a lengthy paper entitled “Scotland Analysis: Currency and Monetary Policy”. On the same day, the Scottish Government published a paper titled “Currency Choices for Scotland: Response to the Fiscal Commission Working Group”. This paper endorsed an earlier recommendation by the Working Group to the effect that an independent Scotland should seek a formal monetary union with the remainder of the United Kingdom to facilitate the continued use of sterling.

The purpose of this paper is to analyse, from a legal perspective, the various currency options available to Scotland in the event that independence is gained. As the Treasury Report points out, there are essentially four currency options for an independent Scotland, namely:

  • a formal currency union with sterling;
  • unilateral adoption of sterling;
  • joining the euro; and
  • introducing a new Scottish currency.

These alternatives are considered in the attached briefing note.

Scotland and independence – currency, banking and financial issues.

Charles Proctor, Partner, Fladgate LLP (

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