Scots would continue to use the pound as part of a formal currency union after independence, the SNP long argued. But Chancellor George Osborne ruled that out in a recent speech, following advice from Treasury civil servant Sir Nicholas Macpherson.

Since then the issue of currency has been the dominant one in the independence referendum campaign. And the SNP’s case appeared to be strengthened when Beijing-based professor Leslie Young criticised Macpherson’s claims and appeared to suggest that currency union was still viable.

Members of the Scotland Decides ’14 panel assess the state of the currency debate.

Professor Michael Keating, University of Aberdeen

The nationalists have lost the currency union argument because if the Treasury and the Bank of England don’t want to share the currency, they don’t have to. This is not to say that Scotland could not continue to use the pound. It could do so without the consent of the UK but this would mean accepting monetary policy made in London for the rest of the UK.

It’s really not convincing for the Scottish Government to say rUK [the remaining UK] will give way and share the currency with us anyway. It leaves them in a weak position in negotiation if they do not have a fall-back. It also rules out the euro, which nobody wants to talk about at the moment but many want to leave open for the future.

I have not seen many outside the SNP on the yes side who think that currency union should be the only option on the table. There are several other options. One is to opt for a Scottish currency, at least in the longer term.

Another is to leave things open and say it will be up to a future Scottish Parliament to decide, although this would be risky politically.

The SNP argument that it’s as much Scotland’s currency and so London has no right to say it belongs to them is more of a moral argument than a legal one. If you withdraw from the state, you withdraw from the currency.

But the SNP’s threat to not take on any UK debt is certainly a counter argument. The UK has already said it will pay the debt and then ask the Scottish Government to pay their share. That allows the Scottish Government to say they will withhold their share, which puts them in a stronger position. That might give an independent Scotland a battering in the financial markets, but it might only be temporary.

Having said that, it’s a kind of nuclear weapon, because it might invite all kinds of retaliation and open up conflicts in other fields.

Professor Jo Armstrong, University of Glasgow

The Leslie Young report was useful because it neatly highlights there is more than one set of answers to the questions posed (and then answered) by Sir Nicholas MacPherson on the key issues surrounding Scotland joining a formal currency union with the rest of the UK.

The key questions were: “Are the fiscal rules that will be required and the monetary conditions sufficiently tight that an independent Scotland would be able and willing to comply?”

Young implies that the fiscal and monetary rules would need to be sufficiently tight, or the markets would react negatively against Scotland. Hence a key reason against Scotland formally sharing the pound, he suggests, falls away.

But using his article as evidence in support of sharing the pound runs counter to the idea that Scotland wants to have its own fiscal levers, particularly around corporation tax. Would the Bank of England be comfortable with that? Macpherson’s letter suggests not.

Macpherson also highlighted that Scotland’s banking system is too large for Scotland to be able to provide the necessary guarantees, and would need to rely on the rest of the UK to provide such insurance, which would not be desirable to London.

Young suggests this banking issue will not be a problem as he envisages the banking sector in Scotland will become smaller, if the lender of last resort is the Bank of England.

Given limited fiscal manoeuvring and a largely local banking sector, it is somewhat unexpected that the Scottish Government is arguing this paper cuts a swathe across the Treasury’s arguments for not having a currency union. Is the Scottish Government really arguing for a formal sterling currency union based on Young’s propositions?

Professor Chris Whatley, University of Dundee

Some say the English are bullying the Scots with issues like the currency union, but I don’t think so. George Osborne and the Treasury are entitled to say: “If you guys and girls go for independence and separatism, that’s fine, but these will be the consequences.” This is just stating the facts of economic life.

It was exactly the same in 1707. The Scots knew that there would be consequences from not being in the union. One of the reasons why some Scots went into the union in the first place was because there was a threat that England would close the border to Scottish goods or increase the taxes on them, which was actually already happening.

There has always been that animosity, that contest and even dislike between England and Scotland. Now that rivalry is re-emerging. There were sensible people around in 1707 who recognised that it wasn’t good for either country.

That was one of the reasons why some people supported the union in the first place, including the then monarch, Queen Anne. We seem to be slipping back and reopening some of those festering wounds. It’s not a good place to go to.

So if there’s caution about independence this shouldn’t necessarily be interpreted as being “feart”. It’s about being prudent, asking whether an entire breach of the union is worth the dislocation this will cause.

Professor Trevor Salmon, University of Aberdeen

If we go for currency union, an English Government that agreed to it would lose the next election. People in England have high antagonism towards the Scots and Alex Salmond. It’s not going to be equal partners negotiating.

I don’t think Alex Salmond quite understands what the English think of him and Scotland. Too much debate is intelligent and rational, but at the end of the day it’s perception that counts.

The perception is that the Scots are getting about £1200 more per head than England. The more concessions that the prime minister makes, the more support he will lose among the voters.