English 'unlikely to let separate Scotland use pound' The Daily Telegraph reported yesterday how the analysis states there is no guarantee that Scottish bank notes would survive independence as they are regulated and their face value protected by the Bank of England. The First Minister has claimed it would be relatively straightforward and mutually beneficial to create a currency union, or sterling zone, between a separate Scotland and the remainder of the UK. However, the Treasury report will warn that this would represent a "profound economic change" for both countries as each would be exposed to the fiscal and financial problems in each other's economies. The vast majority of that risk would be borne by the remainder of the UK, as the much larger of the two countries, meaning that any currency union would have a "fundamental asymmetry" at its heart. For Mr Salmond's plan to have a chance of working, the report will state that a separate Scotland's tax and spending plans would continue to be subjected to "rigorous oversight" by Westminster. A cross-Border deal would also have to be reached over the Bank of England acting as lender of last resort for a separate Scottish government. "But, even with constraints in place, the economic rationale for the UK to agree to enter a formal sterling union with a separate state is not clear," the document will state. The recent experience of the euro area has shown that it is extremely challenging to sustain a successful formal currency union. A currency union may not be "economically or politically durable" if the markets perceive it is a transitional arrangement or lacks political commitment, the Treasury will also state. This is what happened when the UK was forced to leave the Exchange Rate Mechanism (ERM) in 1992 and the Czechoslovakian monetary union collapsed after only 33 days the following year. Market speculation could put "immediate pressure" on any sterling zone, the report will suggest, especially as it is "far from certain" that a separate Scotland will obtain an opt-out from the euro. Unless all the existing member states agree to an opt-out, the report will warn: "An independent Scottish state may end up de facto negotiating simultaneously a commitment to adopt two different currencies." Joining the euro would allow Scotland to benefit from the existing EU framework, the Treasury will note, but Europe would dictate monetary policy and exert large influence over tax and spending levels. Keeping sterling with no currency union would mean a separate Scotland would have no control over monetary policy or ability to print money. Several small countries have adopted this system, but the report will claim it would be "too constraining" for an independent Scotland. Although a new currency would give Scottish ministers the most control over fiscal and monetary policy, the Treasury will warn this would lead to higher trading costs with Scotland's export markets, particularly the rest of the UK. The exchange rate for the new currency would likely be highly volatile, the report will warn, leading to large fluctuations in domestic wages and prices. Writing in a blog, Alistair Darling, the former Chancellor, said the nationalists cannot promise a separate Scotland would keep the pound as it is the UK's currency. The leader of the Better Together referendum campaign questioned why the remainder of the UK would "go out of their way to set up eurozone-type arrangements." But John Swinney, the Scottish Finance Minister, said: "The sharing of the pound between an independent Scotland and the rest of the UK is the common sense position." He argued a sterling zone would be in the "overwhelming economic interests of the rest of the UK" as North Sea oil helped the UK's balance of payments by £40 billion last year.