The Scottish Government’s currency plans for the country after a vote for independence may have “fundamental flaws”, according to a former banker.
Professor Brian Quinn, who held senior positions at the Bank of England, said that while a formal sterling currency union with the rest of the UK is the preferred choice for Scotland, problems could appear as economies diverged.
He raised his concern that Scottish financial institutions could be considered “riskier”, that crisis management may suffer and that an assumption other UK taxpayers could share the costs of the collapse of Scottish banks “does not appear to have a legitimate basis”.
Professor Quinn set out his views in a research paper published by the David Hume Institute.
He reflected that many of the questions raised by plans for a sterling zone could be answered in negotiation with the UK Government.
He argued that others, particularly in accountability and governance, appear more fundamental.
“The paper concludes that the concept of a shared system of supervision and crisis management is seriously perhaps fundamentally flawed and that its weaknesses would increase during the indeterminate period of transition following independence,” he wrote.
“This, together with the uncertainties regarding Scotland’s continued use of sterling arising from its proposed membership of the EU, are likely to result in higher prudential requirements for Scottish financial institutions.
“In these circumstances it would not be surprising if they reconsidered their group structures and main domicile.”