Implications for the Australian economy of a Scottish yes vote

Thursday, 18 September 2014  Media Alerts

“A yes vote for independence in Scotland could have some major implications for Australian economy,” said the UNSW Business School’s Richard Holden, who has been analysing the implications of both a yes and no vote on Thursday. “Either way, we’ll see a knock on effect, which may surprise many Aussies.”
The debate over Scotland's future has been heating up in the final days ahead of the referendum.

Professor Richard Holden said the first impact will first be felt on the currency. “The pound has been on the skids for two weeks in row, immediately after a UK YouGov poll showed how tight the referendum campaign has become. If Scotland splits from the UK, the pound will likely become much weaker. Indeed, perhaps the only reason most traders and tourists haven’t noticed it this week is because the Aussie dollar is also on the slide, with both of them tracking downwards.”

However this isn’t a new effect - at the previous vote on Scottish independence in 1979 - when only 32% voted yes - the markets were also spooked.”

He said a key economic question is what currency the Scotts would use in the event of a yes. “The pro-independence campaign has been clear - they want to keep using the Pound, perhaps with a new name, like the Scottish Pound, or the Haggis. Westminster couldn’t stop them—just as Australia can’t stop New Zealand from using the Aussie dollar. However having a common currency without economic and political integration is a very dangerous thing. Monetary policy would be set by the Bank of England, without reference to Scottish economic conditions. In the event of a Scottish recession, the Bank would be unlikely to cut rates. Worse, losing control of the ability to print money means that if Scottish debt got out of control it could not be inflated away. Spain is a perfect example with of how that works.”

Richard Holden is Professor of Economics at the UNSW Business School. He said we must also consider what would happen in the event of a ‘yes’ to the rest of the UK, of England, Wales and Northern Ireland: what the yes campaign call the ‘Untied Kingdom’ or RumpUK. “It’s tempting to say there would be very little impact on Australia - what do internal politics half a globe away have to do with us?” he said.
“However the Pound would be likely to weaken further, relative to the Australian dollar, potentially hurting Australian exporters. The Pound and the Aussie Dollar are one of the world’s most commonly traded currency pairs, due to our shared heritage. Also many tourists and backpackers from the UK would be put off by a stronger dollar, hurting our tourist industry. Tourists from the UK are second only to China in terms of numbers - and many of them stay much longer than Chinese visitors, making a significant impact to the Aussie economy.”

He also added that independence might cause a major blow up of the UK’s economy. “As we learnt in 2008, a major problem in any significant economy can quickly reverberate around the world. We are all interconnected now. A big problem in what remains of the UK could be a big problem for world financial markets, Australia's among them.”

For further comment call Richard Holden on 02 9385 4700, 0409 446 296  or Email

Richard Holden has also written an opinion piece on this subject:

Media contact:

Julian Lorkin: 02 9385 9887