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BoE's Carney grilled about possible implications of Scotland becoming independent

FXStreet (Łódź) - As expected, BoE governor Mark Carney and other MPC members who testified on Wednesday before the UK Parliament's Treasury Committee on the August BoE inflation report, were mainly asked about the possible consequences of Scotland becoming independent.

The head of the central bank suggested that if the Scots decided to maintain the pound it would be necessary to assure a free flow of people, capital, and goods between Scotland and the UK.

"Once you put borders in place, economic borders tend to build up," he stressed.

Moreover, Carney stated that in order to be able to function as a lender of the last resort, the independent Scottish central bank would need access to sterling reserves of about 25% of GDP. It would receive up to £15bn of UK reserves, which is approximately 12% of GDP.

"BoE would take the responsibility of stabilizing the economy in transition period," the central bank head assured. He also said that a currency union would require ceding some sovereignty and that the Scottish government would have to make budget decisions "consistent with currency arrangements if adopted unilaterally."

Apart from discussing the Scottish independence issue Carney said in his prepared remarks that no fixed path had been established for the bank rate and that it should remain "materially below" historical average for now.

He added however that the point where rates should rise was moving closer, which prompted a EUR/USD spike.

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