Report: Backing Scotland’s Currency – Foreign Exchange Reserves for an independent Scotland

Ben Wray

The interest paid on Scottish foreign reserves would likely be significantly less than Scotland’s current contribution to the interest on UK foreign reserves

A NEW report by Common Weal has detailed how the stability of a Scottish currency can be achieved through the holding of foreign currency reserves.

The report is the third by Common Weal on the case for a Scottish currency as part of its White Paper Project, which is building a new case for an independent Scottish state. The report is written by Peter Ryan, an IT expert in the financial sector with over 25 years’ experience.

It can be read in full here

What are foreign currency reserves?

Foreign currency reserves are used by all countries to stabilise a currencies exchange rate, protect against speculative attacks and service debt obligations. It is essential for all countries to base their own currency on a build-up of adequate reserves of commonly used international currencies.

How much foreign currency reserves are needed?

The size of a country’s foreign reserves are very much dependent on the policy and history of a country and there is a substantial spread of holdings across countries ranging within the European Union from 5.69% of GDP in the UK, through 11.96% in Sweden, up to more than 40% of GDP for countries like Bulgaria or the Czech Republic For the purposes of this paper, a more typical sum of 20% of GDP shall be demonstrated, which for Scotland is approximately $40 billion (approximately the same value of foreign exchange reserves as Denmark).

How would an independent Scotland get those reserves?

In total, $40.23 billion can be feasibly raised to support an independent Scottish currency, broken down in the following ways:

  • $16.2 billion may be secured through a reasonable division of the UK’s foreign exchange reserves under a debt and asset negotiation.
  • £4.462 billion worth of hard Sterling currency is in circulation within Scotland. If half of this is converted into the new Scottish currency and the Sterling held by the Scottish Central Bank, $2.9 billion may be raised for the foreign reserve. An equivalence between the new Scottish Currency and Sterling over the transition period will ensure prices initially stay the same.
  • $13 billion would be raised via a foreign exchange swap with the Bank of England to aid the mutual stability of both the economies of Scotland and the rest of the UK.
  • €8 billion Euros ($8.8 billion) will be raised via the issue of a Euro bond. Funds raised will be partially converted into other reserve currencies such as Yen and Renmimbi.

How much debt would be accrued on these foreign reserves?

The costs of servicing the debt accrued by Scotland for these reserves (approximately £70.2 million per year) will be substantially less than the current annual contribution by Scotland to the UK’s foreign reserves (£500 million per year) which are being built up by the UK government to bail out the City of London in the event of another crash.

What about bailing out are own banks?

Several scenarios are outlined regarding the ownership of currently nationalised banks such as RBS. Assuming sufficiently regulatory oversight in no case could it be expected that Scotland would bear the full burden of banking losses incurred outside of Scotland.


Robin McAlpine, Common Weal director, stated: “Building up a foreign currency reserve has been one of the issues which opponents of independence have put forward as an impossible or prohibitively difficult barrier to establishing a Scottish currency. This carefully argued, well informed paper makes clear how straightforward it would be to achieve and how it might even save Scotland money. We are working on a paper on how to establish a central bank and a regulatory framework for a new currency, when complete we will have set out a comprehensive plan for the establishment of a strong, secure, reputable and trusted Scottish currency. The more we build the case for a new independent Scottish nation state, the more achievable and desirable it becomes.”

Craig Dalzell, head of research at Common Weal, said:

“This report is the third by Common Weal to address questions around a Scottish Currency for an independent Scotland. In our previous reports, we established that the best choice for Scotland was to launch our own currency and in our second we explained the details of how we would launch such a currency. In this new report, we deal with the last great “uncertainty” within the topic which is how we create the foreign reserves required to stabilise and defend our currency. The proposals laid out here show that there are various mechanisms available to Scotland by which these reserves can be created and demonstrate that the creation of an independent Scottish currency is entirely reasonable and would be a viable underpinning of a successful economy.”