Mark Carney to Scotland: Keep the pound, lose some sovereignty

Bank of England governor Mark Carney today stepped into the thorny issue of Scottish independence, sounding a quiet,cautionary noteduring a speech before business leaders in Edinburgh over separatists' plans tokeep using the British pound.

Carney,the former Bank of Canada governor,said an independent Scotland thatkeeps the pound would have to give up some national sovereigntyto avoid the kind of risks exposed by the euro zone crisis.

He stressed that any talks between a breakaway Scotland and London would have to find a range of agreements to avoid "clear risks" that could threaten a currency union. These would include "tight fiscal rules" and a banking union.

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"Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance," Carney said.

Scots will go to the polls on Sept. 18 for a referendum on whether Scotland should end its 306-year union with England.

The ruling Scottish National Party last year unveiled details of its plans for independence, which include keeping theBritish pound, the Queen and remaining in the European Union. The SNP wants Scotland to have its own military and collect its own taxes.

The push for independence has lagged in the polls, though there are recent indications the idea is making gains.The SNP has sought independence since it came into power in the Scottish Parliament in 2007. It was returned to power in 2011 with its first majority government.

The British government recently pledged to assume all U.K. government debt in the event Scotland votes for independence, though it said an independent Scotlandwould still need to pay its "fair and proportionate share" of the U.K.'s outstanding stock of debt.

Carney gives 'technical perspective'

Carney said the Bank of England is staying out the political issues of Scottish independence.

"We're looking at this from a technical perspective, from an economic perspective. We're not passing judgment on these issues," he told the crowd.

He listed the benefits and potential pitfalls for countries thatshare the same currency, including the "potentially large costs" of giving up an independent monetary policy and a flexible exchange rate.

He noted the deep economic integration between Scotland and the rest of the United Kingdom, which buys 70 per cent of Scottish exports.

"A word of caution applies here," he said. "The high degree of integration between Scotland and the rest of the U.K. may in part depend on their being part of the same sovereign nation."

Earlier,Carneymet with Scotland'sfirst minister and leader of the independence campaign, Alex Salmond.