One of the world’s leading financial experts has warned there would be “economic turmoil” if an independent Scotland shared the pound with the rest of the UK.
Professor Ronald MacDonald, of Glasgow University, said the SNP government’s plan for a formal currency union was “fundamentally flawed” because it failed to take into account the impact of North Sea oil on the economy.
He predicted a formal union would collapse within a year, sending the economy into a seven-year decline and costing up to £100billion.
Prof MacDonald is ranked in the top 1% of international economists and has advised numerous foreign governments and the International Monetary Fund (IMF).
In a complex briefing, he argued that because oil would represent such a large part of the economy of an independent Scotland, wages and prices would be pushed up.
He claimed this would impact on other sectors of the economy, driving down productivity by about 7% per annum relative to the rest of the UK, which he said was “very bad news”.
“Because this is such a badly set up plan it will cause huge uncertainty,” he said.
“If people vote for independence then from September 18 through to independence day it will start to unravel.”
Prof MacDonald said the financial markets would start to transfer money out of Scotland – in line with the reasons for the contingency plans being put in place by the Bank of England – and could happen “within a year”.
Using IMF figures, the collapse of a formal currency union would cost “a minimum of £30billion” – but Prof MacDonald thinks it would be closer to £100billion.
He said: “What the IMF has shown is if you have a currency bust GDP falls very steeply between 3%-7% of what it was before and it stays that way for about seven years.”
According to him, the failure to take into account the impact of oil on a separate Scottish economy was a major flaw in the work of the Scottish Government’s fiscal commission.
A spokesman for First Minister Alex Salmond said: “I don’t think anyone can reasonably argue that the fiscal commission report was not a serious and substantial piece of work. It looked at currency options, and much besides, in great detail.”