Bank of England governor Mark Carney has weighed into the debate of the future of the UK by declaring an independent Scotland could not keep the pound and be free to set its own taxes.
In a major speech on currency unions in Edinburgh today, Carney laid bare his fears over Scottish independence repeating problems seen in the eurozone.
Scotland will hold a referendum in September on whether it should remain in the UK or become an independent nation.
The Scottish National Party says a new Scotland would keep the same monetary policy as England with interest rates set by the Bank of England.
Carney said any political decision was a matter for the Scottish people but raised the spectre of the eurozone crisis to warn that currency unions need common tax regimes.
He said integrated taxes can smooth future shocks and said there needed to be a “minimum” of tight fiscal rules to enforce prudent behaviour.
He warned Scotland to “think carefully” about the implications of a monetary union to avoid “clear risks” demonstrated in Europe.
Carney said: “Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance.
“The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources.
“In short, a durable, successful currency union requires some ceding of national sovereignty. It is likely that similar institutional arrangements would be necessary to support a monetary union between an independent Scotland and the rest of the UK.”
An independent Scotland would create its own FCA, Financial Ombudsman Service, Financial Services Compensation Scheme and Money Advice Service. Advisers have described the proposed changes as a “nightmare”.
The Treasury has promised to guarantee Scotland’s debt in the event of independence over fears that gilts could raise in the run up to the referendum.