•Join the euro: Joining the euro might seem sensible – but at the moment, Scotland is the second biggest fish ina pond of four (with England, Wales and Northern Ireland), something that will certainly not be true in the eurozone.Added to that is the fact that any application to join the euro is subject to a veto by any EU member – Spaindoesn’t want independence movements encouraged due to its Basque and Catalan separatist regions, and(completely speculatively) it would be possible that the remainder of the UK could block an application out ofspite.
•New Scottish currency: Launching a brand new currency is not a simple matter – it is expensive for one thing.However the real issue is the value that the world would place on such a currency with so little history and anuncertain future. Exposure to the global FX markets is no small risk, particularly for an open economy likeScotland that would rely on two very susceptible industries – oil and finance. The issuance of government debtwould likely prove expensive too, as it is for most brand new issuers on the global stage. This option, while trulybeing independent, would be the riskiest of all of the above.
There are of course other issues that independence would bring, but from our point of view, the currency is the first, huge hurdle Scotland would face – all other challenges pale in comparison.
Ben Kumar is an investment manager at 7 Investment Management
