17/09/2014 World Business Report

headlines from BBC World News. Now for the latest financial news with

Sally Bundock and World Business Report.

Money talks, but the Scottish currency issue remains unanswered.

We look at the options. Plus ` markets look to the US Federal

Reserve for fresh hints on when the cost of borrowing will rise in

America. Welcome to World Business Report. I'm Sally Bundock. Also in

the programme: China's President begins a tour of India. We look at

the importance of economic ties between the Asian giants. But first:

In less than 24 hours' time, the Scottish people will go to the

polls. But as both sides of the campaign trail head out for one last

day, so several key questions remain unanswered. And one of the most

prominent ` what currency would an independent Scotland use? That is a

question our business editor Kamal Ahmed explores for us now. There are

four options if Scotland votes yes. A formal currency union, carrying on

using the pound without a union with the rest of the UK, joining the

euro, or creating a new Scottish currency. The first, a formal

currency union, is when two or more nations use the same money. The euro

is an example of this. It means Scotland and the rest of the UK

would share a Central Bank, the Bank of England. The pros include minimal

disruption to business and the Bank of England as a lender of last

resort, protecting savers from financial failure. The cons include

an interest rate set outside of Scotland. Taxpayers outside Scotland

would be on the hook if a Scottish bank went bust. The second is that

Scotland would carry on using the pound without a union. An

arrangement called sterlingisation. Other countries do this, Panama uses

US dollars without their agreement. Montenegro uses euros but is not in

the EU. On the upside, Scotland would still use an internationally

recognised currency, but on the downside, Scotland would not control

interest rates, and the Bank of England would no longer be the

lender of last resort. The Scottish government would have to take on

that role alone, which could leave it needing to raise large amounts of

new money. The third option: Scotland aims to join the EU, and

new members have two pledged to adopt the euro. The pros, being part

of the world's largest trading bloc with the backing of the central

bank. But it would take years to join in the eurozone already has its

fair share of economic problems. Finally, a fourth. Scotland could

meet its own currency which could be pegged to Stirling or float freely,

that would mean a new Scottish central bank would be set up. The

pros, Scotland would control interest rates and monetary policy.

But the new currency is initially likely to be weak and would need

millions of pounds in foreign reserves to ensure stability. And

Scotland might have to bail out its own banks should anything go wrong.

A new Scottish currency could float on international markets like the

Swedish currency, but then the currency would be exposed to

currency swings which might not be good for businesses or consumers.

Kamal Ahmed making sense of the options. I'm joined by Rupert

Lee`Browne, chairman and chief executive of Caxton FX. First of

all, don't you think it's a bit much to ask those in Scotland to make a

decision as big as this without knowing what currency they are going

to be using? Certainly there is. And I think that the difficult choice

for Scotland at the moment is deciding on such a pivotal issue.

Because everything around the future economy of Scotland, and also to a

certain extent the rest of the United Kingdom, hangs on this one

question. What currency are they actually going to be using? We heard

the four options very clearly, the pros and the cons, what is the best

one? Out of all of them, we believe a formalised currency union is the

most practical and realistic option. In Westminster they may

gnash their teeth, but ultimately it is good for Scotland, and certainly

good for the UK, for us, to have that formalised currency union,

where Scotland actually agrees to shoulder their fair share of the

debt burden that exists, and going forward, is prepared to actually

accept things like interest rates set by the Bank of England. And how

long will this process take? Let's say the result is yes on Friday

morning. And negotiations will begin between Westminster and Scotland.

How long will it take? It is a long period of uncertainty, isn't it, for

markets? It is an enormous period, in terms of markets it has long

time. A way that Scotland has laid out the 18 month timetable, we are

not entirely sure that that is realistic. And if you are look at

any of the euro entry which has been happening over the last 20 years, it

has been taking about two to five years for a currency to be

introduced, realistically. In terms of Friday morning reaction, talk us

through both scenarios. If the result is yes and then no, what will

happen on the foreign`exchange markets? In the event that there is

a yes, then certainly we would expect to see a lot of volatility

for the ensuing 18 months, if that is the timetable. If there is a no

vote then we would expect the Stirling to recover. It has lost

around percent in the last month or so due to the uncertainty. But it

would certainly recover, and then we are back into the whole question

about what will happen to interest rates `` sterling. Very briefly,

there has been scaremongering about Friday's reaction if the result is

yes, the sterling sinking 10%. A lot of it is priced in? There is

certainly pricing there. To drop a set in a month is considerable, but

we would expect to see a sharp reaction. A very sharp reaction

indeed. Thank you very much put your analysis. `` for your analysis. And

you can find everything you wanted to know about the referendum and

surrounding issues on the BBC website's 'Scotland Decides' page.

Is the American economy now strong enough to survive without emergency

help from its central bank? Therefore is the era of cheap money

provided by the Federal Reserve about to come to an end? These two

questions have been posed before, but later today we could have the

answers. The US Federal Reserve ends its two`day meeting later, with a

statement and press conference that will be watched very closely, as Ben

Thompson reports from Washington. America's economic recovery has been

fuelled by two things. Cheap money and low interest rates. Together,

they have boosted growth and cut unemployment. They have also come at

a heavy cost. At its height, the emergency stimulus was costing

America 85 yen dollars a month. And it is a price that America no longer

wants to pay. Policymakers here at America's Central Bank have already

scaled back that financial buffer. It is due to end entirely next

month. And so attention now has shifted to the cost of rolling.

Interest rates have been at their record lows since 2008, and so a

rise is inevitable. The question however is when that might happen. I

think the Fed is very unlikely to hike rates if they don't feel the

economy can handle it. I think one of the reasons we are having this

conversation is that the data has been looking better in the US of

late, and as a result the Fed feels a little bit more comfortable about

the idea that rate rises may be coming a little bit sooner than the

market is currently pricing in. In the market reaction is important,

because low rates have met more money in the pockets of ordinary

Americans. That has translated into a stock market rally. Add in that

economic stimulus programme and the economy has been awash with cash. So

many fear that turning off the taps too soon could derail the recovery.

We have never been here before. There is a risk raced on what we

have experienced before, you could see a pullback in business

investment, you could see a pullback in consumer expenditures related to

access to credit. We think the evidence would suggest the economy

has recovered to the point that that is not... That doesn't have to

happen. So when good rate rise? Until now the Fed has insisted it

won't happen until considerable time after it stimulus programme ends.

Many on Wall Street consider that to be the first half of next year. They

will be watching closely for any change in language which could

signal a rise much sooner. Market don't like surprises, but it could

be just what they get. India is preparing to welcome the Chinese

President Xi Jinping later today. The symbolic three`day trip is seen

a chance for India to push for improved economic ties with China.

Our very own Rico Hizon is in Singapore for us. Tell us more about

this trip. It is the first visit of a Chinese president to India since

26 and there is a drive on both sides to forge closer trade and

investment relations. China is India's guest trading partner but it

is not and equal relationship. For any dollar exporter, it imports

three. So they have direct by this. Over the last year, is between the

two sides dropped to an in Munich 65 billion US dollars. So in the medium

term, for Narendra Modi, boosting trade and foreign investment is

critical. To create jobs for the 13 million young Indians entering the

market each year. As for Xi Jinping, it is about opening warmer

ties with India, and a new chapter of influence compared with arch

rival Japan. And investment pledges are expected of about 35 early in US

dollars to India. That is all we have time for. I will see you soon

as we look through the papers. Welcome back. The market for the

cigarette is estimated to be worth more than ?90 million a year. But

experts are still deeply divided over their safety. Last month the

World Health Organization called for a ban on their indoor use, because

of concerns about public health. Our correspondent Tim Muffett reports.

The arguments this world. Electronic