- use Sterling
- join a monetary union
- establish its own currency
"In principle, a flexible exchange rate does not require any foreign exchange rate holdings, although, in practice, countries with a floating regime do hold such reserves. A flexible exchange rate regime would be compatible with the foreign exchange reserves an independent Scotland would likely inherit post-independence.
Such a regime would provide a period of stability for the central bank and treasury of an independent Scotland to build credibility in the operation of fiscal and monetary policies. It would also allow time for foreign exchange reserves to be built up if there was a desire to move to a more fixed form of exchange rate regime in the future.
For a newly independent Scotland with a balance of payments deficit and fiscal deficit, the initial currency depreciation could be steep, with knock-on implications for the value of assets and liabilities denominated in sterling. Issues of redenomination and transactions costs would loom large.
But this currency thistle of redenomination has to be grasped at some point on the journey to Scottish independence. The message of this article is that if Scotland is to become independent, the sooner this is addressed, the better given the way that capital markets operate in a globalised economy."