The final section of the SNP's Growth Commission deals with currency: what would we be using in an independent Scotland?
The report states: "The Commission recommends that the currency of an independent Scotland should remain the pound sterling for a possibly extended transition period.
"A future Scottish Government should put in place the arrangements and financial infrastructure that would support a move to an independent Scottish currency at such time as this was considered appropriate for the Scottish economy."
The report also makes seven recommendations around the currency of an independent Scotland.
They are:
1. Currency Recommendation – Sterling Retention: The Commission recommends that the currency of an independent Scotland should retain the pound sterling for an extended transition period.
2. Currency future options: governance and tests: In order to secure maximum long-term certainty, we recommend that the governance and rules should be set in advance. We recommend 6 tests detailed in the report for a future decision on currency to be based upon:
i) Fiscal sustainability
ii) Central bank credibility and stability of debt issuance
iii) Financial requirements of Scottish residents and businesses
iv) Sufficiency of foreign exchange and financial reserves
v) Fit to trade and investment patters vi) Correlation of economic and trade cycle
3. Scottish Central Bank: should be established. This should be created to act as banker to the Scottish Government, holding deposits and providing liquidity support (subject to asset and collateral requirements) for Scottish retail banks and provide a clearing system for these banks. assuming the functions in Scotland of the FCA and PRA through its SFA subsidiary.
4. Scottish Financial Authority: as an independent wholly owned subsidiary of the Scottish Central Bank. Adopting the responsibilities of the UK FCA and PRA it would also take the lead on other (non-banking) parts of the financial sector in Scotland.
5. Scottish Financial Services Compensation Scheme: should be established by the SCB mirroring the UK FSCS scheme.
6. Bank regulation: banks regulated for their activities in Scotland by the SCB/SFA would be required to ring-fence their retail banking operations. A resolution regime would be established mirroring the UK approach for the orderly winding down of failed banks. The transition arrangements would ‘grandfather’ as much as possible from the UK arrangements.
7. Lender of Last Resort: the SCB will act as lender of last resort to individual banks with a liquidity rather than solvency problem and provide emergency liquidity assistance to the banking system where there is a systemic need. After consultation, the SCB would introduce rules on capital structure and asset quality on retail banks to ensure that adequate collateral is available to match retail deposits in such banks. Financial support should only be provided to the ring-fenced retail entities operating in Scotland. It should not extend to the holding companies of retail banks whether operating in Scotland or elsewhere.
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