Edinburgh Napier University

  PERSPECTIVE If the people of Scotland favour independence, the split will create high level of uncertainty, and this component of risk will be extremely difficult to deal with On September 18, in the national referendum on independence people residing in Scotland will have an opportunity to decide upon Scotland's future. This will be arguably the most important political event in recent UK history: after three hundred years, the Acts of Union of 1707 might cease to exist ending common state of Scottish and other British Nations. The possible implications of a referendum result favouring independence would be tremendous and could be extremely difficult to assess for both Scotland and the New United Kingdom. Increased Uncertainty If the people of Scotland would favour independence, the split will create A high level of uncertainty. This component of risk is extremely difficult to deal with. This fact must be translated into high expected costs of the split. If, for example, economic policy of independent Scotland is concerned, nothing can be known about her economic policy until it is formulated and executed. However, in the modern world there are no real assets, like gold or silver, which could back the economy and the only available asset is confidence in a country's economic capacity and its policy. If we start from the latter, economic policy, the most important issue is the currency of an independent Scotland. There are three options: currency union; currency board; and, new currency. For the currency union, there should be an agreement of both, independent Scotland and the New Union, to create it. However, the Westminster establishment has signalled its lack of commitment to such a solution. This stance seems to be logical and in the interest of the nations, which would stay in the New Union. The uncertainty mentioned before is then going to decrease the confidence in the new economy of independent Scotland. This must be translated into reduced confidence in the pound if it is shared by independent Scotland and the new UK in the currency union. This is due to the fact that it will be used by two different economies with two different fiscal policies of which independent Scottish has not been tested before in practice. On the other hand, we can be pretty sure what kind of policy is to be continued in the New Union as the political establishment has been tested there for years. The logical question is, why then should the other three nations accept such a loss of asset? The rest of the UK political establishment expresses this fact by not agreeing to the monetary union and does this in the interest of its voters. If we are to consider the second option of currency board, we must first explain the difference between this solution and the currency union. In the latter, there is a common monetary policy, which is influenced by both partners; in the latter, a country uses the foreign country currency without any influence on its monetary policy. This means that fiscal policy of the country using a foreign currency must be compatible with its foreign country counterpart. This means no independence in setting taxes, subsidies and budget deficit and no political spell or magic could change this.