IndyFAQs: How easily could an independent Scotland set up its own currency?

This article will consider the experiences of other independent nations which developed their own currency after independence. We hope this will answer the questions on the minds of many undecided voters: namely how difficult/easy would it be for Scotland to create its own currency and whether this would cause economic instability. 

We will present some mini case studies to highlight the positives of adopting a new currency, with examples of recently independent countries who have created and launched their own currency both quickly and effectively. 

Case Studies:

Estonia:

  • In August 1991, Estonia formally declared its independence from the Soviet Union, after a 17 month transition period. 
  • Ten months later, in June 1992, Estonia became the first country of the former Soviet Union to replace the Soviet Ruble with its own currency – the Estonian Kroon. 
  • The decision was made in April 1992 to introduce a Currency Board to ensure a smooth transition and preparations for the introduction of the Kroon moved along at full force. 
  • The introduction of this new currency was efficient and successful. The establishment of the Estonian Kroon, among other policies, led to inflation dropping below 3%, unemployment falling below 6% and foreign investment surging in the subsequent 20 years.
  • Estonia joined the European Union in 2004 and later adopted the euro in 2011.
  • After Estonia’s transition to its own currency, a number of other former Soviet Bloc countries also opted for the currency board method, including Lithuania and Bulgaria.

Croatia:

  • The Croatian National Bank was established in December 1990, seven months before the country formally declared its independence. 
  • After independence, Croatia initially transitioned to using the Croatian dinar between December 1991 and May 1994 at par with the Yugoslav dinar.
  • In 1992, Croatia became involved in one of the many conflicts that followed the collapse of Yugoslavia. This had a devastating impact on multiple industries – one third of the capacity of the Croatian manufacturing industry was destroyed. GDP in 1993 was nearly 40% lower than it was in 1990 and the annual inflation rate soared over 1100%.
  • In response to this economic turmoil, Croatia implemented a Stabilisation Programme, involving amongst other things the Central Bank tightening monetary policy and relaxing the foreign exchange market. One year later, inflation had steadied. 
  • In May 1994, as part of this stabilisation process, a new currency, the Croatian Kuna, was introduced. By 1995, inflation had been reduced from its 1993 level of 1,616% to 3.7%. The conflict officially ended in November of that year.
  •  After its introduction, the Croatian Kuna remained stable, countering inflationary expectations and helping Croatia reach economic stability. 
  • At the beginning of 2023, Croatia officially adopted the euro, becoming the 20th member of the eurozone.

Slovakia

  • The National Bank of Slovakia was established in 1993, as a result of the peaceful split of Czechoslovakia, known as the ‘Velvet Divorce’. Initially, both countries had agreed on a currency union, but this only lasted for just over a month until they each established their own currencies.
  • By the 8th of February 1993, 39 days after the dissolution of Czechoslovakia, the official monetary divergence had taken place and the new Slovak Koruna was established as the currency of Slovakia. 
  • This currency divergence and establishment of a new currency was carried out very efficiently.
  • Slovakia and its new currency succeeded in ensuring stable and low inflation, a steady, growing economy and convergence with the EU. 
  • Slovakia adopted the Euro in 2009, five years after it joined the EU in 2004. 

Conclusions:

These mini case studies provide examples of new currencies being created and launched both quickly and effectively, under far more difficult circumstances than would be the case for an independent Scotland. Establishing the institutions necessary to manage an independent currency is a task that many other countries have completely successfully, sometimes even before they are fully independent. 

None of the nations mentioned above worried about the cost of introducing a new currency, as it was clear that the benefits of full control over monetary policy were more important. All three countries discussed now use the Euro, having decided that as developing nations, being more closely aligned with the EU would benefit them. Believe in Scotland will publish a future FAQs article on whether an independent Scotland would do the same if it joined the EU. 

The issues surrounding the creation of a new Scottish currency should not act as an obstacle for independence. The timing of implementation of the Scottish currency would be whenever worked best for Scotland – which would be dependent on the prevailing political and economic circumstances post-independence. 

If launching a new currency were to unfold similarly to the countries described above, an independent Scotland would likely be able to experience stability and greater financial control and flexibility that we do not currently enjoy as part of the UK.