Joseph Stiglitz, the internationally-renowned economist who sits on Nicola Sturgeon’s Council of Economic Advisers, said a free-floating Scottish pound could be used to stimulate the economy and lower its towering deficit.
Scotland spent nearly £15 billion more than it generated last year – a 9.5% deficit which outstrips crisis-hit Greece.
The Scottish Government is examining ways to keep Scotland in the European Union (EU) after Brexit but critics have pointed out the EU requires a deficit below 3% and a commitment to join the euro.
Mr Stiglitz said taking Scotland into the euro would be “a mistake” but insisted there is a greater willingness in the EU to accept countries which do not want to use the euro.
Alex Salmond, the former first minister who appointed Mr Stiglitz to his government advisory team, has said the shared currency plan was a key weakness in his 2014 independence campaign and allowed him to be “gazumped” by Westminster.
In the run-up to the referendum in 2014, the Fiscal Commission Working Group – part of the Council of Economic Advisers – made a ”clear recommendation” for Scotland to retain the pound in a formal currency union with the rest of the UK, if there was a Yes vote.
Reflecting on this plan on BBC Radio Scotland’s Good Morning Scotland programme, Mr Stiglitz said: “They wanted the smoothest transition possible.
“They wanted to say that we could move from the current economic arrangement to another one while keeping our currency and keeping other forms of institutions.
“I think, in hindsight, that may have been a mistake.
“It would be a mistake to join the euro, by the way, so what they would have needed to do, perhaps, was resurrect the Scottish pound and let it float.
“Small countries can have their own currency. The reason that Iceland, which had one of the deepest downturns in 2008, had one of the strongest recoveries was because it had its own currency.”
He added: “If there was a Scottish pound floating, you could help stimulate the Scottish economy. The deficit would come down to make it acceptable to joining the EU.
“I think there’s going to be, going forward, a greater willingness – I hope there is a greater willingness – within Europe for countries to be a member of the EU but not have the euro.
“Sweden doesn’t have the euro, obviously the UK did not have the euro before, so they have shown some willingness – a concerned willingness – to accept countries into the EU without joining the euro.”
He urged Scotland to avoid being “tethered” to the euro in its efforts to remain in the EU.
“If you were forced to join the euro as a price of joining the EU, then I would have very strong second thoughts,” he said.
“It’s too high a price. Your economy should not be ruled by Frankfurt, which is what would happen if you had to join the euro.”