Mark Carney's speech may cause severe headaches for Alex Salmond
Richard Edgar
Former Economics Editor
The governor of the Bank of England has stepped in to one of the most explosive fundamentals of Scottish independence: whether the country would keep the pound if it decided to leave the rest of the United Kingdom.
In a debate which centres on sovereignty, the ability to choose one's own path, he explains why the reality of choosing the pound would require both countries giving up that independence.
In a speech to business leaders in Edinburgh this afternoon, Mark Carney was emphatic that he was leaving the political decisions to the people and parliaments and wants to set out the pure economic arguments.
But to my mind his neutral presentation of the facts may well cause the leader of the Scottish National Party, Alex Salmond, and those campaigning for independence, some severe political headaches.
Dr Carney rehearses the reasons why a currency union makes sense between trading partners. These are familiar to us from when Britain's entry into the euro was being discussed over a decade ago.
A country can save 0.5 per cent of its GDP by sharing a currency and avoiding foreign exchange fluctuations and the costs of switching between currencies.
He explains that countries don't even need to be that similar for a currency union to work well although, at the moment, Scotland's economy is structurally very similar to the rest of the UK, if you divide up income from North Sea oil on a per capita basis.
Wage costs are similar, too. All of this is unsurprising after more than two centuries of integration.
But Dr Carney stresses that the recent experience of the eurozone crisis is evidence of the "clear risks" if the right frameworks are not put in place.
The eurozone is still reeling from sovereign debt crises where investors doubted the ability of countries to honour their obligations and demanded sometimes punitive interest rates on government bonds especially as they worried some of those countries might withdraw from the euro and devalue their currencies.
Those doubts arose as the countries became embroiled in saving their banks, acting as a lender of last resort, putting huge demands on their resources especially as they didn't have a central bank of their own which could print money in extremis.
The governor then explains the framework which is needed to avoid these and other crises if there is to be a "durable, successful currency union".
And it is the reality of these which may be unpalatable to the independence movement in Scotland just as much as the rest of the UK, requiring, as they do, "some ceding of national sovereignty."
Both countries will have to agree to share the risks of banks going bust.
They will have to share a common financial regulation system, and deposit guarantees - a full banking union. Although Dr Carney doesn't mention if this has already been called on when RBS and HBOS, two banking giants collapsed and needed huge bailouts.
Similar arguments are still being thrashed out in the eurozone. Dr Carney's speech today adds in a lot of economic argument to the debate on Scotland's future but I expect the arguments to rumble on very loudly.