FIRST Minister Nicola Sturgeon has been quick to allay fears over an independent Scotland using the pound without a formal currency union, stating such an arrangement would not be akin to Panama.

She spoke out after a major report on Scotland's economy, commissioned by the SNP, recommended the country should retain sterling as its currency if it voted to leave the UK.

Following a transition period, possibly of some 10 years, an independent Scotland could then look to set up its own currency if six key tests were met, the Sustainable Growth Commission said.

The SNP is currently considering the report's findings, but Sturgeon said retaining the pound post-independence would not leave Scotland "in the same position as Panama" - where the US dollar is legal tender.

The SNP leader was pressed on the issue when interviewed by Politico on a visit to Brussels.

She stated: "If Scotland was to use the pound outwith a currency union, even for a transitionary period, I don't think it puts us in the same position as Panama for example.

"The term sterlingisation that is often used is when a country chooses to use a currency that is not its own.

"The pound is Scotland's currency right now, the pound as everybody knows is a fully tradeable international currency.

"There is absolutely nothing to stop Scotland using the pound and it would be a continuation of what we do right now.

"Of course the recommendation that was set out in the report was to use the pound but also to take steps including the establishment of a Scottish Central Bank, that would prepare the way for a move to a Scottish currency if that was considered to be the right option."

In the run-up to the 2014 independence referendum, the then SNP leader Alex Salmond argued Scotland would be able to use the pound in a formal currency union with the rest of the UK - an idea which was immediately rejected by all the pro-UK parties.

But last week Bank of England Governor Mark Carney told the MPs on the Treasury Select Committee such an arrangement would be possible.

Sturgeon said: "In the last referendum we proposed a currency union which the government of the Bank of England as recently as last week said would be perfectly economically credible. But it gave our opponents a political veto."

She added: "Countries use whatever currency arrangements that best suit their needs and Scotland would have options in that regard, as we would have done in 2014.

"But we look forward to debating the report's recommendations over the next few months."

But Kirsty Hughes, director of the Scottish Centre on European Relations (SCER) think tank warned said an independent Scotland would be unable to join the European Union while it was still using the pound.

Writing on the SCER website, she said: "An independent Scotland, if it did decide to apply to join the European Union, would, of course have to meet the EU's accession criteria. But without its own monetary policy - in the Growth Commission's ten year transition of using the pound - Scotland would face a serious accession challenge."