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Research Director and author of the ASI’s new report “Quids In: How sterlingization and free banking could help Scotland flourish”, Sam Bowman, writes for CityAM, detailing his proposal for ‘adaptive sterlingisation’:

When Scottish voters go to the polls in their independence referendum next month, they may ultimately make their decision on the basis of a single question: if we voted Yes, what currency would we use? The question has massive implications for Scotland’s economy, and since the “Plan A” of a formal currency union between Scotland and the rest of the UK was ruled out by the chancellor, doubts about “Plan B” have dominated the campaign.

Alex Salmond has suggested that “Plan B” may be unilateral use of sterling without a currency union, a system known as “sterlingisation”. As I argue in a new paper for the Adam Smith Institute released today, with the right reforms to Scottish financial regulation, Plan B should be Plan A.

The “adaptive sterlingisation” plan would work like this: the Scottish government would announce no change in its use of sterling as the currency it does business in. Scottish banks currently issue their own notes that are backed on a one-to-one basis by sterling notes held at the Bank of England (million pound “Giants” and hundred-million pound “Titans”). Post-independence, they should be free to issue notes backed by their sterling reserves without restriction.

Read the rest of the op-ed here.

The report, “Quids In: How sterlingization and free banking could help Scotland flourish”, can be read and downloaded for free here.

The report argues that an independent Scotland could have a more stable economy than the rest of the UK if adopted a policy of, what it calls, ‘adaptive sterlingization’, which combines unilateral use of the pound with financial reforms to remove government protection of established banks.