Scotland would have to relinquish a degree of sovereignty if it would keep sterling as its currency in the event of becoming independent, according to governor of the Bank of England Mark Carney.
Scotland has signalled it would keep the pound if voting for independence in September. However, Carney (pictured) said in a speech in Edinburgh that the experience of the eurozone shows that a ‘durable, successful currency union requires some ceding of national sovereignty.’
Carney said a prerequisite would be a banking union between Scotland and the rest of the UK, referring to common supervisory standards, access to central bank liquidity and lender of last resort facilities, common resolution mechanisms, and a credible deposit guarantee scheme.
‘Without a banking union, cross-border capital flows can be restricted, the effectiveness of monetary policy impaired and, in the extreme, the viability of the union itself undermined,’ said Carney, speaking at a lunch hosted by the Scottish Council for Development and Industry.
According to Carney, a banking union would also need common fiscal arrangements, as ‘problems in one country are very likely to spill over to others.’
Referring to the European experience of the inadequacy of fiscal rules as opposed to fiscal mechanisms, Carney said the Scottish parliament and Westminster ‘would have to agree on whether fiscal rules were sufficient or whether…risk-sharing mechanisms were necessary’.
On the broader question of whether monetary union would be the right option if Scotland were to become independent, Carney said it was entirely up to the parliaments of Scotland and Westminster to negotiate and that the Bank of England would implement any outcome of such talks.