Scottish leader says currency pact with UK won't weaken sovereignty

LONDON (Reuters) - Scottish leader Alex Salmond said his proposal to form a currency union with the rest of Britain if Scotland voted to become independent would not weaken his nation's sovereignty as it would leave Edinburgh in full control of taxation.

In an interview with the Financial Times on Saturday, the head of Scotland's devolved parliament dismissed concerns about the workings of a sterling union which were highlighted this week by Bank of England Governor Mark Carney.

Salmond is leading the drive for Scotland to split from Britain in a September 18 referendum, arguing that Scots will be better off in charge of their own finances.

British Prime Minister David Cameron's government opposes Scottish independence, saying both sides of the border benefit from the 307-year-old union.

As the debate intensifies, the currency has become a major battlefield, with Salmond insisting Scotland has a right to its share of British assets, which would mean using the pound and central bank, the Bank, as the lender of last resort.

But the British government has given no guarantee of accepting such an arrangement and said it is highly unlikely that it could be reached.

Salmond, Scotland's First Minister since 2007, reiterated his warning that without a share of UK assets, an independent Scotland could walk away from its share of UK liabilities such as its 1.2 trillion pounds ($2.0 trillion) of government debt.

"You've got a negotiation where the UK government will want to persuade the Scottish representatives that they should take on a share of debt which is the legal liability of Her Majesty's Treasury," he told the Financial Times.

Salmond said an independent Scotland would be happy to cede sovereignty on monetary policy but on fiscal policy it would only have to accept aggregate limits to state debt and borrowing.

He dismissed assertions by Alistair Darling, former British chancellor (finance minister), a Scot and leader of the pro-union Better Together campaign, that a currency deal would mean Scotland having to seek approval from London for its tax policy. "That doesn't cover the rates of taxation, I don't think there's any need for that," Salmond said.

The creation of a currency union with the rest of Britain is central to Salmond's Scottish National Party (SNP) vision of an independent Scotland. Alternative options such as joining the euro zone or creating a new currency are seen as more expensive and potentially riskier.

Some in the SNP accept a currency union might involve limited fiscal policy freedom, but say it would still leave an independent Scotland with far more control over its economic destiny than possible as a devolved part of Britain.

With the nationalists lagging in opinion polls, investors have shown little concern about the chance of Scotland seceding so far.

But an ICM poll last Sunday showed the independence campaign gaining ground after two stagnant years, with 37 percent backing independence, up five percentage points, with 44 percent against and 19 percent unsure.

(Reporting by Belinda Goldsmith; Editing by Mark Heinrich)