Lord King claimed he does not envisage “any major problems” regarding which currency Britain’s northernmost nation would use should it decide to break-away from the union – but claimed it would struggle to borrow money.
It comes after Nicola Sturgeon has demanded yet another Scottish independence referendum between autumn 2018 and spring 2019.
However the First Minister was slapped down by Theresa May who claimed “now is not the time” for another referendum vote, as Britain’s two-year Brexit negotiations look set to commence on March 29.
Lord King, who headed Britain’s central bank from 2003 to 2013, told BBC Newsnight: “Scotland certainly could be an independent country. There are plenty of small countries the same size as Scotland.
“Scotland has both the people, it has the capital city, the history, the culture. It could be an independent country. The question is, does it want to be, given the consequences of it?”
The SNP argued during their 2014 referendum that they would share the pound with the rest of Britain should they leave – something which was rejected by former Chancellor George Osborne and other leading Westminster politicians.
Lord King added: “I, myself, don’t think there are any major problems in terms of currency – that was the thing that project fear focused on last time.
“But there is an issue about public finances.
It would be a challenge to borrow on the international market if Scotland decided to run a large budget deficit
“And if the oil price remains low and if they lose the money which is transferred from the rest of the United Kingdom to Scotland, then they would have to make that up in their own budget, but that’s a consequence of deciding to be financially independent, you end up paying for yourself.
“And it would be a challenge, I think, to borrow on the international market if Scotland decided to run a large budget deficit.
“I think that would be expensive, the interest rate would go up. But that’s one of the consequences of saying ‘if we want to be independent we have to accept the consequences’.”
An SNP spokesman retorted: “Mervyn King is absolutely right in concluding that, of course, Scotland could be an independent country – we have huge economic strengths and solid foundations on which to build.
“We’ve seen so many of the promises made to the people of Scotland in 2014 unravel – not least that if Scotland voted No we would keep our EU membership.”