Scottish independence: the Bank of England (and Wales, Northern Ireland and Scotland)
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
PERSPECTIVE DOI:10.5235/17521440.7.2.69
PERSPECTIVE
Scottish independence: the Bank of England (and Wales, Northern Ireland and Scotland)
March 2013
Scottish independence: the Bank of England (and Wales,
Northern Ireland and Scotland)
ROD MACLEOD and HAMISH PATRICK
Tods Murray LLP
If an independent Scotland opted to keep the pound, would (or could) the Bank of England continue to act as
Scotland’s central bank, how would such an arrangement work in practice and what would be the implications for
the Scottish and UK economies post-independence?
A. The proposal Clearly, the debate over how an independent Scotland
would manage monetary policy and whether or not the Bank
With the referendum on Scottish independence on the of England would continue to act as its central bank has a
horizon in 2014, many questions on the mechanics of inde- long way to go. However, with the opening arguments on
pendence remain unanswered. With no legislative framework both sides confined to black and white statements of support
in place for a nation state seceding from the United Kingdom, or opposition to the SNP proposal, we believe that the need
issues such as the division of the UK national debt, claims to for an informed debate on the subject merits a closer look at
North Sea oil reserves or the future of the Faslane naval base how the SNP proposal might or might not work, and what
(home to the UK’s nuclear submarine fleet) will inevitably impact this would have on the respective economies of Scot-
be the subject of intensive and, no doubt, prolonged negotia- land and the rest of the UK.
tion should Scotland vote to break away from the rest of the
UK. The choice of currency and addressing the central bank
role for Scotland raise further big questions that need to be
answered. B. The central bank function
As the Scottish National Party (SNP), which is leading the
“yes” campaign, has already indicated that an independent The importance of a central bank to a country’s economic
Scotland would retain sterling as its currency,1 a fundamental well-being is generally taken for granted but it is worth
question in the independence debate is whether or not the briefly considering the Bank of England’s core functions in
Bank of England would (or could) continue to act as the order to appreciate what is at stake.
central bank for an independent Scotland. Although central bank operations and responsibilities vary
The SNP certainly believes so. Responding to criticism in from one country to the next and can include responsibility
May last year that retaining sterling would mean that an inde- for printing and issuing the nation’s currency, setting bank
pendent Scotland would effectively be relinquishing control reserve requirements and managing the nation’s foreign
over monetary policy to a foreign country, SNP Deputy exchange and gold reserves, the Bank of England is primarily
Leader Nicola Sturgeon proposed appointing a representative responsible for the following:
to the Monetary Policy Committee (MPC) of the Bank of
1. Monetary policy – The Bank of England manages the UK’s
England in order to safeguard Scottish interests.2
money supply and thereby seeks to maintain sterling price
However, as the Bank of England is required to operate
UK monetary policy independently of government, doubts stability, principally by controlling or influencing interest
have been raised in some quarters over the ability of an inde- rates with a view to meeting the UK government’s infla-
pendent Scottish government to make such an appointment tion target. In practice, the Bank of England adjusts the
or otherwise influence the decision-making process of the UK’s base interest rate by lending to or borrowing from
MPC. a number of qualified banks and by buying and selling
The UK government has also signalled its reluctance to bonds and securities on the international money markets
entertain such proposals in the event of a “yes” vote carry- until the target base interest rate is met. By targeting low
ing the day. Appearing before a House of Lords committee interest rates, the Bank of England can also encourage
investigating the economic impact of Scottish independence economic growth (as consumers and businesses will then
in late December last year, the Scottish Secretary, Michael generally have more money to spend and borrowers will
Moore, stated that it was “highly unlikely” that the rest of the be inclined to borrow more), whereas targeting high
UK would agree to the Bank of England acting as Scotland’s interest rates can act as a brake on inflation by increasing
central bank.3 the price of credit and reducing spending power.
March 2013 Law and Financial Markets Review 69Scottish independence: the Bank of England (and Wales, Northern Ireland and Scotland)
2. Financial stability – Since 2009, in direct response to the England, there should be no insurmountable legal impedi-
financial crisis, the Bank of England has been tasked with ments to an independent Scotland and the rest of the UK
protecting the integrity of the UK’s banking and financial entering into a currency union. Any decision to enter into a
system from systemic threats, both at home and abroad. currency union will stand or fall by the economic and politi-
By monitoring threats to the banking and financial system cal arguments put forward in support of or against such a
(including, for example, over the last four or five years the union. Whether or not the rest of the UK would agree to
collapse of the housing and commercial property markets a currency union with Scotland – and on what terms – are
in the UK, undercapitalised banks and exposure of banks other questions, which are considered later.
to the sovereign debt crisis) the Bank of England is in There are numerous examples of countries around the
a position to address those threats using a number of world sharing the same currency, often due to geographical
financial mechanisms. For example, during the ongoing and economic reasons, and which can be classed as cur-
financial crisis, the Bank of England has provided liquid- rency unions (sometime referred to as monetary unions),6
ity to the financial system using a variety of temporary although for the purposes of this article, we distinguish
support facilities and has otherwise acted as “lender of last between countries which have unilaterally adopted another
resort” to UK financial institutions experiencing liquid- country’s currency without any formal agreement (a process
ity problems. The Bank of England also has a number of often referred to as “dollarisation”) and countries which have
operational mechanisms at its disposal, such as the “special agreed to share the same currency or, going a step further,
resolution regime” (introduced under the Banking Act which have agreed to share the same currency and have a
2009 (“the 2009 Act”)) for dealing with distressed banks common monetary policy with an appointed institution
and building societies, as illustrated by the statutory busi- acting as the central bank for those countries,7 the latter of
ness transfers and special administration put in place for which we will refer to below as a “currency union”.
Dunfermline Building Society in March 2009.4 Care also needs to be taken in making comparisons with
3. Banking and financial services regulatory supervision – Although currency unions such as the European Monetary Union
a tripartite system involving the Bank of England, the UK (EMU) on the grounds that the EMU involved the intro-
Treasury and the Financial Services Authority (FSA) cur- duction of a new currency in the form of the euro and has
rently oversees financial services regulatory supervision in specific governance structures in place to reflect the involve-
the UK, most of the supervisory functions and responsi- ment of the various Member States and the interaction of
bility are being transferred over to the Bank of England the continuing central banks of those Member States with
under the Financial Services Act 2012, which establishes the European Central Bank (ECB). Likewise, care is required
three new regulatory bodies under the auspices of the in making comparisons with more conventional currency
Bank of England: the Financial Policy Committee, which unions made between separate nation states as the scenario
will sit within the Bank of England and be responsible that we are envisaging involves one country seceding from
for macroprudential oversight; the Prudential Regulation another country, leaving the institution that had previously
Authority (PRA), which will be a subsidiary of the Bank acted as its central bank under the nominal control of the
of England and be responsible for microprudential regu- other country whilst at the same time trying to forge a cur-
lation of systemically important institutions, including rency union with that other country.
banks, building societies, insurers and certain investment What is clear is that if Scotland wants to keep sterling as its
firms; and the Financial Conduct Authority (FCA), which currency, then it is unlikely to have a central bank of its own
will take over the majority of the FSA’s existing roles, and will in any event have to rely on the Bank of England
including the business conduct regulation of all firms to continue setting interest rates and managing monetary
and the prudential regulation of firms not covered by the policy on its behalf. Of course, Scotland could continue to
PRA. use sterling without agreement with the rest of the UK (dol-
larisation) but this would mean relinquishing any control or
influence it previously had over monetary policy.
C. Currency union – how would it work?
2. Legislative changes
The SNP’s proposal to retain sterling as Scotland’s currency
and to seek representation on the MPC in the event of Scot- Under its current constitution, the Bank of England acts as
tish independence effectively amounts to a currency union the central bank of the UK and, as briefly noted above, under
between Scotland and the rest of the UK, although more section 2A of the Bank of England Act 1998 (“the 1998 Act”),
detail of this proposal is required before it can be analysed one of its core objectives is to “contribute to protecting and
properly.5 For the time being (and for the purposes of this enhancing the stability of the financial systems of the United
article), we can only speculate on how this proposal might Kingdom” (referred to as the “financial stability objective”).
work in practice. Section 11 of the 1998 Act sets out the Bank of Eng-
land’s core objectives in relation to monetary policy which
1. Currency unions are (a) “to maintain price stability” and (b) “subject to that, to
support the economic policy of Her Majesty’s Government,
First and foremost, provided that the relevant legislative steps including its objectives for growth and employment”.
are taken to amend existing UK legislation regulating the Section 13 of the 1998 Act, which states that the MPC has
governance, responsibilities, powers and role of the Bank of responsibility for formulating monetary policy, also sets out
70 Law and Financial Markets Review March 2013Scottish independence: the Bank of England (and Wales, Northern Ireland and Scotland)
the MPC appointment process. The MPC is currently made only intended to demonstrate a few of the basic issues involved
up of the Governor of the Bank of England, two Deputy in reshaping the current UK legislation relating to the Bank
Governors, two members appointed by the Governor (in of England for this purpose – a difficult and complex under-
consultation with the Chancellor of the Exchequer) and four taking perhaps, but by no means an impossible undertaking if
members appointed by the Chancellor. independence and currency union becomes a reality.
Therefore, at a very basic level, if the SNP’s proposal were
to be implemented in the event of Scottish independence,
3. Practical considerations
the current legislation on monetary policy would need to be
amended (if not replaced in its entirety), for example, sub- Leaving aside the legal minutiae, a host of practical details
stituting references in section 11 of the 1998 Act to “Her would have to be dealt with at the political level in order to
Majesty’s Government” with references to “Her Majesty’s implement a currency union – for example, the respective
Governments of the United Kingdom and Scotland” (given governments would need to agree a mechanism for setting an
that the Queen is likely to remain the head of state of an
inflation target for the Bank of England, bearing in mind that
independent Scotland).
maintaining price stability in two separate countries could be
Additional changes would need to be made to the MPC
a thorny issue when the average cost of living and wages may
appointments provision at section 13 of the 1998 Act in order
to allow an appointment or appointments to be made by the be higher in one country than the other and susceptible to
Scottish Finance Secretary, although the number of appoint- change in different ways. In mitigation, this disparity already
ments allocated to Scotland would no doubt be subject to occurs from region to region in the UK under the current
much deliberation. Agreement would also need to be reached MPC arrangements and is for the most part inevitable in
on who appoints the Governor of the Bank of England and most currency unions.
the senior management team (currently two Deputy Gover- On the other hand, agreeing how the Bank of England
nors and up to nine Directors). At present, the Governor and would go about supporting the economic policies of two
the senior management team are appointed by the Queen on separate governments may be a harder proposition and could
the recommendation of the UK Treasury. prove to be the subject of future disputes, providing all the
In addition, agreement would need to be reached on more reason then to agree a common monetary policy in the
whether and how the Bank of England’s financial stability event of a currency union.
objective would be extended to Scotland, and therefore, the Concerns over MPC independence and whether the
extent to which Scotland may be considered to have separate proposal to appoint a Scottish representative to the MPC
financial systems from the rest of the UK for this purpose and conflicts with that principle have been overplayed to a certain
whether the Bank of England would, amongst other things,
extent. Governments generally continue to have a degree of
continue to act as lender of last resort for Scottish financial
influence over central banks through their power to make
institutions. Accordingly, while reference to “the United
executive-level appointments. Furthermore, the Bank of
Kingdom” in section 2A of the 1998 Act could be extended
to “the United Kingdom and Scotland”, some further elabo- England can only be said to have operational independence
ration would be required as to what this would entail by way (ie the freedom to decide which mechanisms to use in order
of stability considerations, the mechanics that would be used to achieve its objectives) – aimed at preventing short-term
to achieve them and how they would be executed, such as political interference – and successive governments continue
actions as lender of last resort and the funding of such actions. to have control of economic policy by setting the inflation
The continuing application of the special resolution regime target each year.
under the 2009 Act to Scottish financial institutions and the Other matters that would need to be resolved include
roles of the Bank of England and the UK Treasury in exercis- agreeing whether or not an independent Scotland would be
ing powers and discretions under that regime would also need granted a share in the capital stock of the Bank of England
to be considered as presumably the 2009 Act would need to (currently held by the Treasury Solicitor on behalf of the
be amended to provide a role for the Scottish government in Treasury), and whether or not a newly formed Scottish Treas-
decisions relating to the resolution of financial institutions of ury would be expected to underwrite central bank funding
relevance to Scotland. provided to Scottish banks and other financial institutions or
As prudential regulation (and indeed conduct of business some share relative to all institutions dealt with by the Bank
regulation) of systemically important institutions is directly
of England. If the Scottish Treasury were granted a share in
relevant to the stability of financial systems it would appear
the Bank of England’s capital stock, there would also be inter-
logical also to extend the regulatory functions of the PRA
esting questions over its share of any income generated by the
and FCA to relevant Scottish financial institutions, with con-
sequent amendment being required to the Financial Services Bank of England, including seigniorage income (the income
Act 2012 (and the SNP has indeed indicated that it favours generated by issuing the national currency).
continuing to share the pre-existing financial regulation No doubt arguments could also be made that this pro-
regime to some extent,8 raising various further issues beyond posed common central bank should be called the Bank of the
the scope of this article). United Kingdom and Scotland but with over three hundred
Needless to say, the changes discussed above merely scratch years of history behind the Bank of England, this would
the surface of the legislative reconstruction that would be probably be a case of wishful thinking rather than an urgent
required if the SNP’s proposal were to be accepted and are priority!
March 2013 Law and Financial Markets Review 71Scottish independence: the Bank of England (and Wales, Northern Ireland and Scotland)
D. The case for and against a currency union of the UK although it is hard to see how this would act as a
restraint on UK economic policies in light of the relative sizes
If an independent Scotland decided to keep sterling, it could of the respective economies. From the perspective of the rest
choose to negotiate a currency union with the rest of the of the UK, fiscal oversight of Scotland’s finances appears to be
UK or it could pursue the dollarisation option and adopt an essential element in any independence agreement which
sterling unilaterally, although if it chose the latter it would contemplates a currency union, whereas from Scotland’s per-
effectively be giving up any control of monetary policy – spective, it could amount to a loss of fiscal autonomy.
which would seriously affect Scottish government economic
policies. If neither of these options were workable, it would 2. What are the other options?
have to consider adopting another currency, joining another
currency union or issuing its own currency – which for the If an independent Scotland decided against retaining sterling,
time being we’ll call the “Scottish pound”. then it could choose to adopt another currency, although the
same dollarisation issues discussed above would apply in that
1. Pros and cons Scotland would have no direct control over monetary policy.
There would also need to be a sound economic and trade-
Currency unions are generally entered into in order to based case for adopting the currency. The currency would
facilitate and reduce the cost of cross-border trade for busi- need to have a suitable exchange rate and would need to
nesses and consumers, usually in conjunction with free-trade take into account Scotland’s most important export market
agreements, relaxed migration rules and harmonised legal destinations, factors which inevitably lead us to conclude that
principles. The irony of the “yes” campaign seeking to har- if Scotland were to dollarise in the short term with a view to
monise monetary policy and a raft of other common interest entering into a currency union or issuing its own currency
areas such as financial services regulation whilst seeking to at a later stage, it would still appear to be better off adopting
deharmonise in others is not lost on many commentators, sterling in order to reduce the cost of cross-border trade for
although one could argue that it also mirrors the current UK Scottish business and consumers with the rest of the UK.
government’s position on EU membership in different fields. An independent Scotland could, of course, opt to join
In considering whether or not a currency union would be
another currency union, and again, the same pros and cons for
beneficial to an independent Scotland and the rest of the UK,
currency unions discussed above would apply, as would the
both sides would need to ask themselves what the cost would
need for a sound economic and trade-based case for adopting
be of entering into a currency union with the other. What
another currency. Obviously, there are economic and trade-
would be the cost to the rest of the UK in terms of cross-
related arguments for Scotland entering the eurozone at some
border trade if Scotland adopted another currency and vice
stage, although much uncertainty surrounds Scotland’s future
versa? As the junior member in the currency union, Scotland
in Europe. We are not proposing to examine an independ-
would in principle have a seat at the MPC table, and there-
ent Scotland’s future EU status in any detail in this article;
fore a say in proceedings, but would arguably not have very
however, it is worth noting that there are differing academic
much more influence over monetary policy in practice than
and institutional opinions on whether Scotland would be
it would with dollarisation – where Scottish issues would
remain relevant indirectly to the rest of the UK. Conversely, allowed to choose between the euro or the pound if it wants
the rest of the UK would be allowing a foreign country to EU membership on the grounds that a newly independent
have a say in its economic affairs on currency union – but Scotland would not necessarily inherit the UK’s opt-out from
would this matter at either the practical or political levels?9 the EMU under the Maastricht Treaty (though it could of
It is likely that large companies and financial institutions course negotiate one). Likewise (but at the other end of the
operating in both Scotland and the rest of the UK would spectrum) opinions differ on whether or not Scotland would
favour the use in Scotland of sterling for cost and efficiency be able to join the EU automatically following independ-
reasons, which may influence politicians either side of the ence or whether it would have to apply for admission as a
border. Additionally, the presence of a single central bank and new Member State and be required to adopt the euro (unless
regulator in both Scotland and the rest of the UK would otherwise negotiated).10
eliminate some doubts about which institutions are “Scot- In any event, even if an independent Scotland did have
tish” and issues of their potential “migration” south of the to apply for admission to the EU (or did not automatically
border, while not eliminating issues relating to the source of seek EU membership), Scotland would still be able to adopt
any support that may be required thereby. the euro unilaterally or agree with the EU to use the euro
In return for considering Scotland’s interests in any future as its currency but would not have formal representation in
monetary policy decisions and extending the Bank of Eng- the ECB or at meetings of eurozone members until its EU
land’s financial stability objective to Scottish banks, it is also admission was ratified.
likely that an independent Scotland would need to dem- Which leaves the last option: the Scottish pound. Issuing
onstrate fiscal discipline to the rest of the UK as the larger its own currency would require the Scottish government to
partner in any currency union. This would inevitably involve establish and capitalise a new central bank for Scotland. The
the imposition of checks and balances on Scottish fiscal policy Scottish government would also need to address the issue
with particular focus on the size of Scotland’s public debt, of whether and the manner in which the new central bank
deficit, taxes and public spending. Scotland would no doubt would act as lender of last resort to Scottish banks, otherwise
seek to have some form of oversight of the finances of the rest meet financial stability objectives and determine who would
72 Law and Financial Markets Review March 2013Scottish independence: the Bank of England (and Wales, Northern Ireland and Scotland)
be responsible for regulating banking and financial services F. Conclusion
in Scotland.
Whilst some would view issuing a new currency as a high- Should Scotland vote for separation, it seems fairly safe to
risk alternative due to the inevitable uncertainty over the assume that the central bank function would be a key feature
new currency’s exchange value on the international money in any independence agreement between Scotland and the
markets, if Scotland issued its own currency it would at least UK given its importance to the banking system on both
guarantee a greater degree of fiscal autonomy than under the sides of the border. However, there are too many variables
other options. An independent Scotland’s size and reduced at play to be able to predict with any accuracy at this stage
whether Scotland would still be using the Bank of England as
economic power on the international stage (when compared
its central bank post-independence should it choose to retain
to the rest of the UK) would not necessarily preclude a suc-
sterling, although there are strong arguments in favour of it
cessful currency in the long run – if one looks at nation states
continuing to do so, both from a Scottish perspective and
such as Switzerland or Singapore. However, on balance, it
from the perspective of the rest of the UK.
appears unlikely that the Scottish pound would be a popular However, if an independent Scotland keeps the pound,
option in Scotland in the short term as market confidence there needs to be an appreciation that, at best, Scotland will
in any new currency is likely to be affected by the ongoing have limited control over monetary policy as the junior
global economic crisis. partner in any currency union or even less influence if a cur-
rency pact is rejected. Further analysis of Scotland’s control
over and responsibility for fiscal affairs following independ-
E. UK government position – does it stack-up? ence is also needed in the run-up to the referendum in 2014
given the role of fiscal policy in any currency union.
The Scottish Secretary has indicated the UK government’s What is certain is that the rest of UK could not prevent
opposition to the Bank of England acting as central bank for an independent Scotland keeping the pound and conversely,
Scotland, calling into question the chances of an independent an independent Scotland could not insist on the UK entering
Scotland entering into a currency union with the rest of the into a currency pact with Scotland. Whether Scotland would
UK, but is this a realistic position to take? want to retain the pound without an agreement on currency
union (and possibly also a fiscal pact) is another matter.
Although Scottish independence raises many constitu-
The rejection of a currency union with Scotland by the
tional questions and problems for the UK due to the absence
rest of the UK could be a game-changing event for the “yes”
of a legal blueprint to follow for a nation state breaking away
campaign, not least because it would mean reshaping their
from the UK, much will depend on negotiation and the
economic policies and revisiting their plans for the Bank of
prevailing political will on either side to make concessions England overseeing Scottish financial regulation and acting
should the Scottish electorate favour independence. as lender of last resort for Scottish banks. Viable alternatives
Whilst the UK would be well within its rights to reject an would need to be proposed, scrutinised and put in place
offer of a currency union with Scotland, this scenario seems prior to an independence date which could further delay an
unlikely due to the negative impact that this would have on independence deadline as building central bank operations,
negotiations over other areas of the national break-up. In regulatory systems and acquiring the expertise to drive it all
addition, the UK government may also feel on further reflec- forward would be a long-term project for the Scottish gov-
tion that it is better to retain some form of formal monetary ernment.
and fiscal influence in Scotland when the economies of Scot- More details are therefore required from the “yes” cam-
land, England,Wales and Northern Ireland are so intertwined. paign on how a currency union between an independent
The notion of bailing-out a bank from another country Scotland and the rest of the UK could be made to work
might be a politically sensitive issue; however, supporting and what role the Bank of England would have in relation
the Scottish banks would be in the interests of the rest of to Scottish banks and Scottish financial services firms and
the UK and given the interconnectedness of the banking how this would be funded. The lack of concrete detail is
system in Scotland and the rest of the UK, some formal role understandable to a certain extent as so much will depend on
in the financial stability of Scotland may seem preferable to negotiation with Westminster but the “yes” campaign’s posi-
tion is based on an underlying assumption that agreement
ad hoc negotiation in the event of future crisis. In addition a
will be reached with no indication of what this may involve
currency union would mean that an independent Scotland
and what incentives will be on offer to the rest of the UK
would share collective responsibility for the banking system as
to enter into a currency union. The reluctance of the UK
a whole alongside the rest of the UK and would be expected government to enter into the debate until after the referen-
to pay its way for any bank bail-out, be it a Scottish bank or dum has not helped matters either as this issue should be an
an English bank. important part of the debate leading up to the referendum.
Therefore, whilst the sentiment may be understandable The absence of an informed debate thus far has also created
and may reflect current popular opinion on the subject, it a degree of uncertainty in the financial services industry in
seems premature at best for the UK government to make Scotland. The ability of a small nation such as Scotland to
assertions that the rest of the UK wouldn’t agree to the Bank stand on its own as an independent country is not doubted;
of England acting as an independent Scotland’s central bank however, Scottish-based businesses and investors seeking to
without having a proper debate on the issues involved. invest in Scotland need to be assured that the tools will be
March 2013 Law and Financial Markets Review 73Scottish independence: the Bank of England (and Wales, Northern Ireland and Scotland)
in place to address better or worse economic performance In our view, a currency union between Scotland and the
in the event of Scottish independence. Scottish banks and rest of the UK is entirely possible in the event of Scottish
financial services firms need to know how their industry will independence. There is just no road-map yet to tell us how
be supported in times of crisis and how it will be regulated in we would get there. 쐍
the medium to long term.
1 John Swinney MSP, Scottish Finance Secretary, “The Scottish rency (although Lesotho, Swaziland and Namibia continue to
Economy; The Global Context; and Opportunities Presented retain their own currency and central banks).
by Independence”, seminar presentation, David Hume Insti- 7 Another example is the Eastern Caribbean Currency Union
tute, 2 February 2012. which comprises six independent Caribbean nations (Antigua
2 Nicola Sturgeon MSP, SNP Deputy Leader, speaking on BBC & Barbuda, Grenada, the Commonwealth of Dominica, Saint
Scotland’s Big Debate programme on 27 May 2012. Kitts and Nevis, Saint Lucia, and Saint Vincent and the Gren-
3 Michael Moore MP, Scottish Secretary, appearing before the adines) and two British overseas territories (Anguilla and
House of Lords’ Select Committee on Economic Affairs, “The Montserrat) and uses a common currency, the Eastern Car-
Economic Implications for the United Kingdom of Scottish ibbean Dollar, which is issued and managed by the Eastern
Independence”, Evidence Session No 20, 18 December 2012. Caribbean Central Bank.
Responding to questioning on whether or not the Bank of 8 John Swinney MSP, Scottish Finance Secretary, appearing
England would, amongst other things, act as a lender of last before the House of Lords’ Select Committee on Economic
resort for an independent Scotland, Mr Moore said, “I think Affairs, “The Economic Implications for the United Kingdom
that it is highly unlikely that that would be [an] acceptable of Scottish Independence”, Evidence Session No 19, 11
position for the rest of the United Kingdom. It is the habit December 2012. When asked whether the Bank of England
of the Scottish government and the Scottish Nationalist Party should regulate Scottish financial institutions in the event
simply to assert that that will happen. The whole of the rest of of independence, Mr Swinney confirmed that the Scottish
the United Kingdom would have to be extraordinarily gener- government would look to the Bank of England for macro-
ous both in spirit and intent to take that on. I am not suggesting prudential oversight of Scottish banks but suggested that an
that is beyond the rest of the United Kingdom but one would independent Scotland would be responsible for micropruden-
have to ask why that would be sensible or why it would be tial regulation of Scottish financial services firms.
done.” 9 In an address entitled “The Pros and Cons of Currency Union:
4 For further details on the application of the special resolution A Reserve Bank Perspective” delivered by Donald Brash, Gov-
regime to Dunfermline Building Society, see Bank of England ernor of the Reserve Bank of New Zealand, to the Auckland
News Release, “Dunfermline Building Society”, 30 March 2009. Rotary Club on 22 May 2000, similar observations are made
5 At the time of writing of this article, the Fiscal Commission on the respective positions of strength of different nation states
Working Group, set-up by the Scottish government to advise when examining the case for and against New Zealand enter-
on the macroeconomic framework for an independent Scot- ing into a hypothetical currency union with Australia and other
land, published a paper, “Fiscal Commission Working Group countries.
– First Report – Macroeconomic Framework”, 11 February 10 For a more detailed analysis on an independent Scotland’s future
2013, which sets out a number of options for building such a EU status, see M Weller, Professor of International Law and
framework and which recommends Scotland entering into a International Constitutional Studies, University of Cambridge,
formal monetary union with the rest of the UK with the Bank “Where There Is a Plan There is a Way to the EU”, The Scots-
of England operating as the central bank. The Scottish gov- man, 1 November 2012.The UK government has also published
ernment is expected to publish a White Paper outlining their a paper, “Scotland Analysis: Devolution and the Implications of
plans for a macroeconomic framework based on the Working Scottish Independence”, 12 February 2013, which includes a
Group’s recommendations later this year. detailed legal opinion on an independent Scotland’s future EU
6 Examples include the Multilateral Monetary Area which status provided by Professor James Crawford SC, University of
comprises South Africa, Lesotho, Swaziland and Namibia and Cambridge and Professor Alan Boyle, University of Edinburgh,
which recognises the South African Rand as a common cur- “Opinion: Referendum on the Independence of Scotland –
International Law Aspects”, 10 December 2012.
74 Law and Financial Markets Review March 2013You can also read
