Scotland as an optimal currency area
| Author | Jane M. Binner,James L. Swofford,Andrew W. Mullineux,Sajid M. Chaudhry |
| Date | 01 September 2018 |
| Published date | 01 September 2018 |
| DOI | http://doi.org/10.1111/sjpe.12181 |
SCOTLAND AS AN OPTIMAL
CURRENCY AREA
Jane M. Binner*, Sajid M. Chaudhry*, Andrew W. Mullineux*
and James L. Swofford**
ABSTRACT
The June 2016 UK referendum on continued EU membership where the people
of Scotland voted to remain, while the rest of the United Kingdom voted to
leave, once again makes the issue of whether Scotland is an optimal currency
area very topical. England voted strongly to leave Europe while Scotland backed
remain by 62% to 38%. The Scottish government published its draft bill on a
second independence referendum in October 2016. The move does not mean
another referendum will definitely be held, but this does raise the possibility that
Scotland might choose independence and staying in the EU without the rest of
the United Kingdom. If Scotland charts a course of independence from the rest
of the United Kingdom, then they would likely either issue their own currency or
join or form another currency area.
In this paper, we test the microeconomic foundations of a common currency
area for Scotland, United Kingdom, and the rest of the United Kingdom without
Scotland. We find that the United Kingdom, Scotland, and the United Kingdom
without Scotland all meet the microeconomic criteria for a common currency
area. In contrast, banking data suggest that lending in Scotland is different from
lending in the rest of the United Kingdom, adding some doubt to the issue of
whether or not Scotland is a common currency area with the United Kingdom.
II
NTRODUCTION
The issue of whether or not Scotland is a common currency area first arose
during the summer of 2014 when polls on the vote on Scottish independence
showed the vote would likely be closer than expected. The Scottish indepen-
dence from the UK referendum took place on 18 September 2014. The ques-
tion, which voters answered with “Yes” or “No”, was “Should Scotland be an
independent country?” The “No” side won, with 2,001,926 (55.3%) voting
against independence and 1,617,989 (44.7%) voting in favor. The turnout of
84.6% was the highest recorded for an election or referendum in the United
Kingdom since the introduction of universal suffrage and the outcome seem-
ingly putting this issue to bed for a while.
*University of Birmingham
**University of South Alabama
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12181, Vol. 65, No. 4, September 2018
©2018 Scottish Economic Society.
315
To continue reading
Request your trial