What Currency does Hong Kong use?

Scottish nationalists are in a quandary: how to dissolve the three-century bond with the United Kingdom while preserving their monetary link with the British pound.

Scottish bank notes. Getty Images

And Hong Kong may provide the answer.

Nationalists want to retain the British pound if they win September’s independence vote, but U.K. political leaders ruled out sharing sterling earlier this month. They fear taxpayers would have to back Scotland in times of economic trouble, much as shared use of the euro forced Germany to bail out Greece.

Ditch the union if you want, but say goodbye to sterling, is the message from London.

This creates a bit of a fankle – a Scottish term for a state of disarray, even panic – for the Scottish nationalists. But they may have another card to play.

A currency board could allow Scotland to effectively keep the pound even without consent from the Bank of England, said John Greenwood, the chief economist at Invesco who helped design Hong Kong’s dollar peg, which has held for 31 years.

“If Scotland were to set up a currency board for a Scottish pound that remained at parity (1:1) with the English pound, the trade, current and capital account balances of Scotland would remain broadly unchanged, unless there was some major change in the economic circumstances of either country, ” he said in an email.

This arrangement would require sufficient foreign reserves in British pounds to fully cover the amount of currency in circulation and the total held on deposit by commercial banks for interbank clearing transactions. Hong Kong, for example, holds $312.2 billion.

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