Scotland could end up ‘like Panama’ if it gains independence but keeps the pound, George Osborne has warned.
The Chancellor said it was ‘unlikely’ the rest of the UK would want to enter a currency union with a separate Scotland.
A devastating 118-page Treasury paper sets out the economic realities of independence.
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Damning: George Osborne, pictured in Glasgow yesterday, said he could veto any plan to share the pound with an independent Scotland as the deal could be risky, which would be a huge blow to Alex Salmond should he win the 2014 referendum
Scottish banknotes would disappear if voters back independence and opts to continue using the UK pound, the Treasury warned
The country could use sterling with Westminster’s permission, Mr Osborne said, but would not have any say over the Bank of England or macro-economic policy, which influences currency.
‘We can say no to a currency zone, a euro-style arrangement between two foreign governments,’ he told BBC Radio 4’s Today programme.
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‘Scotland could go on using the pound rather like Panama uses the American dollar, but it would have absolutely no control at all over its currency or its macro-economic framework.’
Countries do use foreign currencies without consent, he said, ‘but it’s a very, very difficult option’.
Mr Osborne launched the Scotland Analysis paper on Currency and Monetary Policy, in the Glasgow Trades Hall
Mr Osborne and the Chief Secretary to the Treasury Danny Alexander, ruled out a euro-style currency zone in which Scotland could opt-in to using the pound
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The reference to Panama raises the spectre of a scandal in the 1690s, when Scotland tried to colonise part of the country, resulting in thousands of deaths. Seven years later, a bankrupt Scotland agreed to the Act of Union.
Mr Osborne also warned that England, Wales and Northern Ireland would not tie themselves ‘to the economic policies of what would have become a foreign government’ or to an economy ‘very dependent’ on oil and finance.
Mr Osborne said in Glasgow: ‘Why would 58million citizens give away some of their sovereignty over monetary and potentially other economic policy to five million people in another state?
‘Let’s be clear – abandoning current arrangements would represent a very deep dive indeed in to uncharted waters.’
Backing: Former Chancellor, Labour's Alistair Darling, says that Osborne is right and that the SNP cannot promise to keep the pound
Should Scotland become independent in the 2014 referendum, and want to use the pound, it would have to submit economic plans to the UK before its administration in Holyrood, he said.
He went on: ‘The conclusion is clear – the pound we share works well. The saying goes, “If it ain’t broke, why fix it?”, but I say, “If it ain’t broke, don’t break it”.’
Scottish First Minister Alex Salmond accused Westminster of ‘sabre-rattling’. He said: ‘This is a Tory Chancellor trying to scare people in Scotland, trying to stop them voting for independence.
‘But the day after a resounding “yes” vote in the referendum . . . he will sing an entirely different tune. It’s in everyone’s interests to have a currency area after independence.’
The Treasury gave four options facing an independent Scotland: forming a UK currency union; joining Sterling with no control over policy; joining the euro; or a separate Scottish currency.
Mr Osborne also warned that Scotland could have to take on large amounts of national debt.
But Scottish Finance Secretary John Swinney claimed ‘the UK as the successor state is obliged to hold on to all of the debt’.
Charles Kennedy, former Lib Dem leader and spokesman for the pro-Union Better Together campaign, said the SNP had showed it was ‘ill-prepared and ill-informed . . . about the ramifications of independence.’
Future: The economic stability of an independent Scotland, based at Holyrood in Edinburgh (pictured) could be impacted if the UK Treasury withdraws the pound