Commentary: Monetary Unions and Fiscal Constraints

The Fiscal Commission Working Group (FCWG) has proposed a monetary union between an independent Scotland and the rest of the UK based on the size of their respective populations. We have argued on several occasions that debt is the critical issue to consider when assessing the various currency options for an independent Scotland. If Scotland takes on a population share of the existing UK government debt, we have also argued in favour of Scotland adopting its own currency. Nevertheless, on this occasion we put this view aside and simply examine the proposals of the FCWG. We challenge the conventional wisdom on the desirability of fiscal constraints and a banking union to underpin a monetary union between an independent Scotland and the rest of the UK.