On the 29th January, the Governor of the Bank of England, Mark Carney, gave a speech in Edinburgh on the economics of currency unions in which he outlined that to have a successful monetary union you require fiscal and political union and that, in the event of a ‘Yes’ vote on the 18th September, an independent Scotland would have to cede some powers to make a currency union with the rest of the UK work.
The UK Government has been clear that an independent Scotland would be unable to retain the pound or the services of the Bank of England, unless the nation handed over control of its interest rates and borrowing levels to the rest of the UK.
Given the Governor’s remarks, the Treasury Select Committee earlier today heard from Mr Carney on the implications of what he said in Edinburgh. I was particularly interested in what Scottish independence would mean for the Bank of England, should the country choose to join the EU and the European banking union, given that the Scottish banks would be regulated by the ECB, and how this would impact on a monetary union with the rest of the UK.
I also wanted Mr Carney to be clear on what obligations – statutory, historical, moral or any – the Bank of England would have to help an independent Scotland determine its own monetary independence arrangements. He was unable to answer that question directly.
I finally asked Mr Carney if an independent Scotland would need to establish its own currency before joining the euro once within the EU, or if it could apply to join straight away. Mr Carney confirmed that it was his understanding that any application to join the EU included a commitment to join the euro.
You can read the full transcript of the TSC evidence session here, and you will find my questions to Mr Carney on pages 12 and 13. You can also watch me questioning him below.