A US expert on economic policy has spoken about the prospect of Scotland creating its own central bank and the effect it will have on a Scottish currency.
Claudia Sahm is a former economist at the White House and the Federal Reserve, which is the country's central banking system.
She was appearing on the Scotonomics podcast that is due to go live today (October 27).
Sahm was asked about the idea of Scotland becoming an independent country and creating its own central bank and currency.
At the moment, the central bank for Scotland is the same as that of the rest of the UK – the Bank of England.
READ MORE: What economic outlook could we strive for with Scottish independence?
A central bank controls the supply of a nation's money and makes recommendations for its monetary policy. The bank controls interest rates and participates in open market operations to influence the cost of borrowing and lending.
While nothing is yet certain about Scotland's economic policy post-independence, one prevailing argument is that Scotland should keep the pound until a point when a Scottish currency is created.
Scotonomics co-host William Thomson pointed out that the argument is to keep sterling for up to 10 years, and while Scotland would be a sovereign nation it would have its monetary policy controlled by the Bank of England.
Sahm said: "Transitions are extremely important. Financial markets can be kind of jumpy. This is why you see central banks trying to give what they call forward guidance, to tell you where we're going. So it makes sense if the goal eventually is to have one's own currency to have a central bank that's overseeing that particular country, then don't do it overnight.
"Now that does mean in the transition, there are unique challenges, even independence doesn't erase all of the connections across economies. Like the United States, in the recovery from the Great Recession, there was a period where Europe was more aggressively pursuing austerity, raising rates pulling back. And there was a very frightening time where it looked like Europe and the troubles it was having could pull the global economy's back into a recession.
"So in many ways, we are all in this together, we see this now with Covid. A lot of the problems, the shortages, the energy, we're all doing it together."
READ MORE: What Scotland taxes will shape our future as an independent nation
She added: "I think there are many benefits to autonomy, it can be tailored to a particular country's circumstances. So I see the argument for it. And yet, we are not alone, economically in this endeavor."
Scotonomics is a bi-monthly YouTube show co-hosted by William Thomson and economics expert Karin Van Sweeden.
You can watch the full episode of the Scotonomics podcast with Claudia Sahm on the Independence Live Youtube channel.
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