Chancellor George Osborne ruled out Scotland sharing the pound with the UK in a speech in Edinburgh yesterday.
In September the Scottish Nationalist Party (SNP) signalled that an independent Scotland would look to keep the pound rather than join the euro or set up its own currency.
However, Osborne (pictured) warned: ‘A vote to leave the UK will be a vote to leave these unions and those transfers and those monetary arrangements.’
He said that in order to make a currency union work there would need to be a banking union, great fiscal risk sharing, the same monetary policy and a strong union-like bond to show permanency.
‘[The pound is] a system that includes the Bank of England and the tens of millions of UK taxpayers who stand behind that financial system,’ he said. ‘It is a system that is supported by political union, banking union and automatic transfers of public spending across the United Kingdom.
‘A vote to leave the UK is also a vote to leave these unions and those transfers and those monetary arrangements.’
Sharing the currency would require UK taxpayers to promise to bail out Scottish banks and it would require the Scottish government to accept substantial controls over its spending and economic policy, said Osborne.
He also said that the SNP's previous threats to default on a proportion of UK’s public debt if there is no union or to continue to use the pound were ‘empty and reckless’.
Chief secretary to the Treasury Danny Alexander has also said that a currency union would create ‘unacceptable risks for both Scotland and the rest of the UK.’
He said that Scotland’s separation would already be a risky and most uncertain step the country has ever taken.
‘To take that step and then give up control over interest rates, exchange rates, and freedom over tax and spending policy would leave an independent Scotland hugely exposed to economic shocks but without any of the economic levers to manage a response,’ he said.
In January governor of the Bank of England Mark Carney also warned that Scotland would have to relinquish a degree of sovereignty if it would keep sterling as its currency in the event of becoming independent.