Pound issue main concern as Scotland vote nears

Reuters/Edinburgh

Like many Scots, shop owner Anne McAlister is drawn to the idea of independence but cannot throw off nagging doubts about splitting from the rest of the UK.

McAlister would like public policies that are more left wing than Britain’s Conservative government is going to provide.

On the other hand, she runs a classical music store in the centre of Edinburgh and sells compact discs to English customers by mail.

Losing the pound could make that harder.

“I would prefer Scotland to have a lot more power and a lot less of Cameron and Osborne,” she said, referring to Britain’s prime minister and finance minister. “But what I and my customers would find really difficult is another currency.”

Businesses in Scotland - who send 70% of their exports to the rest of the UK - are increasingly focusing on the independence referendum due on September 18.

A key issue is what currency Scotland would use if the country splits from the UK.

Campaigners for scrapping the 300-year-old union want Scotland to keep the pound, a.k.a sterling.

The British government says it would be highly unlikely to agree to that.

Last week, Bank of England Governor Carney cited the euro zone crisis to stress the challenge of making a shared currency area work - and to show voters that Scotland might lack control over large areas of policy even after independence.

Without a deal, an independent Scotland could introduce its own currency, possibly pegged to sterling. Or it could use sterling without London’s blessing, as Ecuador and Panama use the US dollar.

Either could leave Scotland exposed to attack by speculators as it ventures into global financial markets.

Brad MacKay, a management professor at the University of Edinburgh who has interviewed 50 firms on the prospect of independence, detects some signs of concern.

Most companies are wary of alienating customers by entering the heated debate. Several he spoke to, though, have negotiated break clauses in their property leases which can be activated in the event of independence.

Power company SSE said last year that independence made Scotland a riskier bet for investment, and Royal Bank of Scotland has warned it could relocate to London. Energy giant BP warned on Tuesday of “big uncertainties”.

Most of Britain’s oil and gas lies off the Scottish coast, and they would probably become a mainstay of an independent Scotland’s economy, which is now about the size of New Zealand’s.

But exactly how they would be divided is up for negotiation. “This is an unprecedented scenario, and there is real and genuine uncertainty,” MacKay said. “There’s generally concern that some of these issues haven’t been worked through.”

Scottish nationalists argue the concerns are misplaced. They say the rest of the UK will recognise that its own interests will be best served by agreeing to a currency union with an independent Scotland, given their close economic ties.

Scotland’s First Minister, Alex Salmond, said last week that former BoE governor Mervyn King had told him that London would ease its stance in the event of a vote for independence.