An independent Scotland would have to compromise its sovereignty if it wants to remain in a sterling-based currency union, BoE governor Mark Carney has warned.
Speaking this afternoon, Carney told an Edinburgh audience there are “clear risks” should the foundations of a currency union fail to be properly put into place, highlighting the example of the eurozone.
“A durable, successful currency union requires some ceding of national sovereignty," he said.
“It is likely that similar institutional arrangements [to those of the eurozone] would be necessary to support a monetary union between an independent Scotland and the rest of the UK.”
The Scottish government plans to retain sterling as part of a formal currency union in the event that Scots vote for independence in this year's referendum.
It has proposed to set up a Scottish equivalent of the Financial Conduct Authority, while continuing to use the Bank of England as the lender of last resort.
While stating his aim to steer clear of politics, Carney said a banking union between Scotland and the rest of the UK would also be crucial post-independence, as well as some degree of shared fiscal arrangements.
The governor described the existing banking union as “durable and efficient” compared to that of the eurozone.
Carney also noted these arrangements allowed Scotland to sustain a banking system with a balance sheet larger than its GDP.
“An independent Scotland would need to consider carefully how to develop arrangements with the continuing United Kingdom that are both consistent with its sovereignty and sufficient to maintain financial stability."
