* UK: very unlikely independent Scotland could keep pound
* Businesses fear new currency could cause turmoil
* 'Yes' campaign says UK would gain from shared currency
By David Milliken
EDINBURGH, Feb 5 Like many Scots, shop owner
Anne McAlister is drawn to the idea of independence but cannot
throw off nagging doubts about splitting from the rest of the
McAlister would like public policies that are more left wing
than Britain's Conservative government is going to provide. On
the other hand, she runs a classical music store in the centre
of Edinburgh and sells compact discs to English customers by
mail. Losing the pound could make that harder.
"I would prefer Scotland to have a lot more power and a lot
less of Mr Cameron and Mr Osborne," she said, referring to
Britain's prime minister and finance minister. "But what I and
my customers would find really difficult is another currency."
Businesses in Scotland - who send 70 percent of their
exports to the rest of the United Kingdom - are increasingly
focusing on the independence referendum due on Sept. 18. A key
issue is what currency Scotland would use if the country splits
from the UK.
Campaigners for scrapping the 300-year-old union want
Scotland to keep the pound, a.k.a sterling. The British
government says it would be highly unlikely to agree to that.
Last week, Bank of England Governor Carney cited the euro
zone crisis to stress the challenge of making a shared currency
area work - and to show voters that Scotland might lack control
over large areas of policy even after independence.
Without a deal, an independent Scotland could introduce its
own currency, possibly pegged to sterling. Or it could use
sterling without London's blessing, as Ecuador and Panama use
the U.S. dollar. Either could leave Scotland exposed to attack
by speculators as it ventures into global financial markets.
Brad MacKay, a management professor at the University of
Edinburgh who has interviewed 50 firms on the prospect of
independence, detects some signs of concern.
Most companies are wary of alienating customers by entering
the heated debate. Several he spoke to, though, have negotiated
break clauses in their property leases which can be activated in
the event of independence.
Power company SSE said last year that independence
made Scotland a riskier bet for investment, and Royal Bank of
Scotland has warned it could relocate to London. Energy
giant BP warned on Tuesday of "big uncertainties".
Most of Britain's oil and gas lies off the Scottish coast,
and they would probably become a mainstay of an independent
Scotland's economy, which is now about the size of New
Zealand's. But exactly how they would be divided is up for
"This is an unprecedented scenario, and there is real and
genuine uncertainty," MacKay said. "There's generally concern
that some of these issues haven't been worked through."
Scottish nationalists argue the concerns are misplaced. They
say the rest of the United Kingdom will recognise that its own
interests will be best served by agreeing to a currency union
with an independent Scotland, given their close economic ties.
Scotland's First Minister, Alex Salmond, said last week that
former BoE governor Mervyn King had told him that London would
ease its stance in the event of a vote for independence.
Recent polls suggest such a vote is increasingly likely. An
ICM survey last month showed that 37 percent of Scots supported
independence, 44 percent opposed it and 19 percent were
undecided - far closer than polls last year.
Ivan McKee, a businessman involved in manufacturing and a
pro-independence campaigner, saw no need for the ruling Scottish
National Party to say what it would do if it could not reach a
deal with London.
Last month, Britain's finance ministry said it would honour
all UK debt if Scotland voted for independence - and seek
recompense from Edinburgh - ending uncertainty that it might try
to shift some government bonds to the Scottish government.
"They had to step in to calm market fears about the debt,"
McKee said. "I think we will see more of that, as the real world
impinges on this head-in-the-sand approach."
History gives little guide as to how any talks might play
out. Scotland and the rest of Britain entered political and
economic union in 1707, when physicist Isaac Newton supervised
the introduction of new coins. But Scotland kept aspects of an
independent state, with its own legal system and banknotes.
The impact of independence would vary among businesses,
MacKay said. Some sectors, such as energy and biotechnology,
would be relatively unaffected, given Scotland's oil and gas
reserves and strong university research departments.
But independence would be more problematic for other
companies, particularly manufacturers that rely on British
government defence contracts and financial services vulnerable
to any currency uncertainty or extra regulatory costs.
Owen Kelly, the head of Scottish Financial Enterprise, a
trade body for Scotland's large banking, insurance and asset-
management sector, worries that a vote for independence could
require the BoE to step in and provide temporary support.
"If there was a 'yes' vote, then I think there would be some
very early activity from regulators and others to address the
immediate volatility that would follow," he said.
Even if the two governments did agree a monetary union, it
could prove vulnerable if markets doubted their long-term
commitment, said Angus Armstrong, an academic at the
London-based National Institute for Economic and Social
Unlike the euro zone, whose member states are bound to
ever-closer union, the Scottish government has not committed
itself to keeping the pound indefinitely, and investors might
demand a premium on sterling-denominated Scottish debt.
But although there could be short-term costs to the
transition to a new country, and potentially a new currency,
Armstrong said Scots needed to take a long-term view.
"Independence is not an overnight thing, it is something
that will last generations. It is up to the people of Scotland
to decide whether it would be worth it."