Currency union between an independent Scotland and the rest of the UK would be unsustainable, according to Business Secretary Vince Cable.
The senior Liberal Democrat MP said it is likely that Scotland would end up with its own currency, despite Scottish Government insistence that sterling can be shared in the event of a “Yes” vote in the referendum on September 18.
His comment comes a week after Bank of England governor Mark Carney said currency sharing is possible with the right foundations, such as a strong banking union.
Mr Cable said: “The plan B is a fully separate currency. The logic of what the governor and other people have spelled out is that the problems of a currency union with an independent Scotland are so difficult, so tricky, that it would almost certainly prove to be in Scotland’s interests - and indeed the rest of the UK - that Scotland did have its own currency.
“Of course, that would create a whole wave of other problems. It would create a barrier to trade across the Scottish border, as different currencies tend to do, and the problems of managing a fluctuating exchange rate in a country that is very dependent on raw materials.
“The basic arguments about the problems about operating a monetary union suggest that Scotland would finish with its own currency, with all the advantages and disadvantages attached to it.”
First Minister Alex Salmond has refused to entertain a “plan B” in the event that the currency union proposal fails.
The Scottish Government’s White Paper on independence argues: “A shared currency is in the economic interests of both Scotland and the rest of the UK, as key trading partners. It will make it easier for people and companies to go about their business across the two countries.”