In case Scotland and UK agree to form a monetary union..

On Sep-18-2014 Scots are going to vote on their independence from UK. In case they do, what choice the country has on its economic framework? Should it continue the monetary union? If it does, what else will authorities have to do? Well, because  of  the EZ crisis, we know much of what needs to be done..

Some basics first. UK comprises Great Britain, Scotland.  Northern Ireland and Wales. It has an interesting monetary framework. Though B0E is responsible for currency in the area, some private banks manage the currency it as well. Wikipedia as always does a good job of explaining the concept.

Mike Carney of BoE in this nice speech explains the economics if UK and Scotland agree to remain in a mon union:

The Scottish government has stated that in the event of independence it would seek to retain sterling as part of a formal currency union. All aspects of any such arrangement would be a matter for the Scottish and UK Parliaments. If such deliberations ever were to happen, they would need to consider carefully what the economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place.

Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance. The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources. In short, a durable, successful currency union requires some ceding of national sovereignty.

It is likely that similar institutional arrangements would be necessary to support a monetary union between an
independent Scotland and the rest of the UK.  I suspect you have reached your limits of endurance of the dismal science, so you’ll be relieved to know that economics can take us no further. Decisions that cede sovereignty and limit autonomy are rightly choices for elected governments and involve considerations beyond mere economics. For those considerations, others are better placed to comment.

He covers some interesting stats on how the union looks like compared to other unions..

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