With recent history in mind, the rUK would surely be wise enough to draft a heavily regulated and detailed agreement when it comes to determining interest rates and monetary policy, as the Bank of England would have to act as a guarantor if Scotland encountered economic difficulty.

Reaching such an agreement is highly unlikely, considering the monetary limitations the rUK might impose on Scotland. It has in fact been ruled out as a possibility by the current UK government.  

This point has been argued intensely by the ‘No’ campaign. Their message is that an official currency union is likely to give an independent Scotland less influence over their economic interests, compared to having a voice within the United Kingdom.

2. Join the European Union and adopt the euro

Could an independent Scotland join the European Union and adopt the euro as its national currency? Well, it’s not beyond the realms of possibility if a Scottish government wanted to remain a member of the European Union.

This is because many constitutional experts believe that a new independent Scotland would have to reapply for membership to the EU. The problem here is that one of the new conditions of EU membership is adoption of the euro. Some argue that Scotland will retain the EU membership it enjoys as part of the UK. So the question is: would an independent Scotland need to start from scratch with the EU?

Another potential issue with Scotland joining the euro centres around policy influence. Like many other minority partners within the eurozone, the European Central Bank would dictate monetary policy. The problem here is that Scotland’s GDP is estimated to be around 2% of eurozone GDP, which translates to very little influence politically.  

It’s also important to consider the public’s appetite for the European project at this present time. The recent European elections sent a powerful message to the political classes that all is not well amongst the 27 members.

3. Adopt an unofficial currency union with the rUK

The third and final option for a newly independent Scotland is unconventional, but it may prove to be the route they take in the short-term, should the polls endorse the ‘Yes’ campaign. Put simply, Scotland could continue to use the pound sterling without and official currency union with the rUK in place. However, this comes with a number of economic risks.   

Unlike an official currency union, an unofficial union will leave Scotland with no affiliation with The Bank of England. The lack of a central bank would leave an independent Scotland with absolutely no influence over monetary policy and interest rates. In addition, should the Scottish economy experience difficulty, The Bank of England would not have the responsibility of providing a bailout package. This leaves the Scottish economy at risk and exposed.

The impact on Scottish business could also be profound. Without a central bank, Scotland would have no way of providing its businesses with physical pound sterling. This could force many big businesses and high-street banks to relocate outside of Scotland, which is an obvious threat to jobs.

Do the public know the consequences?

Ahead of September’s election, it’s important that these issues are made clear to the voting public, as none of these solutions are ideal and create a fair amount of economic uncertainty. The ‘Yes’ campaign’s preference is an official currency union with the United Kingdom, but this has been met with a fair deal resistance. In my eyes, the only real option in the short-term is using the pound sterling in an unofficial capacity.

Jarratt Davis

Watch Jarratt Davis' video: Answering Scotland's currency dilemma