Scottish independence: Academics urge new Scots currency

It is claimed an independent Scotland would need the flexibility of having its own currency

An academic think tank has claimed that a separate currency would be the "prudent option" for an independent Scotland.

The National Institute for Economic and Social Research (NIESR) worked with the Economic and Social Research Council to assess choices on currency.

It concluded the Scottish government's plan to retain the pound would limit its options in a future crisis.

The Scottish government has insisted keeping sterling remains "sensible".

The NIESR paper calculates that an independent Scotland would start off with debts of about £153bn - 86% of national output.

It points out that this would be lower than the rest of the UK, which would have debts of about 101% of its national output.

NIESR director of microeconomic research, Dr Angus Armstrong, argued that it would be "prudent" for the Scottish government to retain its policy levers by introducing its own currency, which would then be tied to the pound.

He added: "That, of course, is a complex thing to do and there are transitional risks.

"Reasonable people can disagree on this, but the approach we are taking is risk management."

Dr Armstrong further explained: "We don't know what the negative shock could be but with this sort of profile you would like to have a degree of freedom to move.

"That is not really a free lunch because it would still be very difficult. You would have to establish your credibility, and you need to have a stabilisation plan in place for achieving this."

The Scottish government has defended its policy of retaining the pound.

A spokeswoman said: "The Fiscal Commission - including two Nobel prize winners - have already considered the best currency for an independent Scotland and agreed that Scotland should keep our pound, a position the National Institute for Economic and Social Research agree is 'sensible'.

She added: "Scotland has a strong economy and will be even stronger and more resilient as an independent nation able to determine our own fiscal and economic policies, than we are tied to UK policies that have lowered living standards and hampered the recovery.

"As an independent country - even if we were to agree to financing a population share of the historic debt which remains with the Treasury who issued it as set out by the Fiscal Commission - we would have a lower debt to GDP ratio than the UK."

A UK Treasury spokeswoman said: "The NIESR paper published today highlights how Scotland benefits from being part of the UK.

"As the government set out in its own analysis, Scotland currently receives lower borrowing costs and increased financial stability from being part of the UK.

"Based on NIESR's estimates, being part of the UK will save Scotland up to £3bn in debt interest payments by 2017-18."