Mark Carney says Scottish independence 'incompatible' with keeping pound

Mark Carney says the idea that an independent Scotland would be able to use the British pound as its currency is"incompatible with sovereignty."

Speaking to reporters and banking officials in Liverpool, England,at the 146thTrades Union Congress, the former governor of the Bank of Canada and current head of England's central bank was askedabout the possibility of an independent Scotland still using the British pound as its official currency.

Scots are headed to the polls on Sept.18fora decisive vote on whether the country should become independent, a vote that polls suggest is too close to call.

After explaining some of the requirements needed for that sort of currency union to succeed, Carney suggestedthat Scots should not assume some sort of euro-style arrangement is feasible.

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"Weonly have to look across the Channelto see what happens if you don't have all those components in place," he said. Considering that all three of the major political parties in London have categorically ruled out sharing the pound in the event of a win for the Yesside, Carney said, "in that context, a currency union is incompatible with sovereignty."

The Canadian-born Bank of England governor has spoken repeatedly on the difficulty of stickhandling effective currency unions in the past. But his comments come on the eve of a vote that's proving to be much closer than many people anticipated.

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A poll published last weekend suggested the pro-independence side has inched into a narrow lead at 51 per cent to 49 per cent of decided voters.

Eager to assuage fears about any economic fallout, those on the pro-independence side have pointed out that more than 80 per cent of Britain's North Sea oil assets are held in Scottish territorial waters. At current output levels, their annual economic value would be roughly equivalent to what Scotland currently gets in transfer payments from London every year about $12billion.

Opinion polls also suggest Scotland is generally inclined to further embed itself in the EU, so there's likely a discussion down the line about the country possibly switching to the euro instead, if the vote succeeds.

The vote is clearly weighing on currency markets and Britain's economic prospects as a whole.The pound has sold off heavily in recent days as the prospect of independence becomes more plausible. The pound is currently trading at $1.61 US, its lowest level in almost a year.

"These are very crucial times for the U.K.," said Patrick Dunleavy, a professor of political science at the London School of Economics. "The U.K. has been united for 300 years and it's been in the European Union since 1973. [The referendum]plus the general election all coming very close together, one way or another, we're going to have five years of constitutional chaos."

Kevin Daly, the chief U.K. economist for Goldman Sachs, said uncertainty about the pound's future value could even trigger a run on the currency. The Bank of England is working on contingency plans to manage the pound in the event of a Yes vote.

"Clearly the market will be watching for the polls," said Bill O'Neill, the head of the U.K. investment office at UBS Wealth Management.