A currency expert has warned that an independent Scotland could cause major uncertainty for the North East economy – regardless of whether it keeps the pound.
Dr Athanasios Vamvakidis, the Bank of America-Merrill Lynch’s European head of foreign exchange market strategy, warned that even the formation of a new monetary system north of the border could have implications for Sterling.
But he said a breakaway could also prove an opportunity for businesses in this region, as any new country would need time to build confidence among international bankers.
“There are many questions to be addressed before investors can make decisions,” he said on a visit to Newcastle University Business School.
“And until all the issues are addressed, in the short term there would be volatility because there would be a lot of uncertainty.
“Preparatory work would be needed – and that would be important for Sterling too as you need to discuss how in fact you’d actually separate the two countries.”
Dr Vamvakidis, who spent 15 years with the International Monetary Fund before taking up his current role, was visiting the city to tell students about the $5bn a day Forex market and the challenges of forecasting short and long-term trends in G10 currencies, and global, EU and British economic trends.
“We wait to see if Scotland decides to separate, and that is far from certain, but what experience tells us is that it doesn’t matter what the currency is, be it the pound or a new currency, what matters is that the policies are right.
“The Eurozone crisis told us that if you are a country without your own exchange then you need to realise it is key to have such policies.
“In a way the USA is a monetary union with very specific rules for local governments and requirements they balance the books, backed up with federal support.
“But in the Eurozone that wasn’t in place and the rest is history.”
Dr Vamvakidis said he didn’t believe it was likely that Scotland would secede from the union, but if they did it could leave businesses in a state of limbo.
“I think initially businesses might wait and see what happens,” he said.
“And if there’s a new currency then you need confidence and policies in place. You need a central bank that’s independent and has fiscally responsible policies, but it still might take time to generate confidence.”
That could present firms in the region with opportunities, particularly if England was seen as a more “stable” place to do business.
But Dr Vamvakidis said he was sure that whatever happens, the lessons will have been learnt from past break-ups.
“In a way, no matter what happens, we have experience of other countries and the lesson is that you can split and start a new currency,” he said.
“Overall we have seen many countries separate and introduce new currencies and they are doing fine.”