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| Scottish banknotes: the Treasury's symbolic hostage in the independence debate | Scottish banknotes: the Treasury's symbolic hostage in the independence debate |
| (5 months later) | |
| As today's leader in the Herald points out, Scottish banknotes state "promise to pay the bearer on demand". Many travellers from Scotland crossing the border with a pocket or wallet-full know how much fun that can be. | As today's leader in the Herald points out, Scottish banknotes state "promise to pay the bearer on demand". Many travellers from Scotland crossing the border with a pocket or wallet-full know how much fun that can be. |
| Blank looks, confusion or even downright hostility, as I discovered in Canterbury last September thanks to a stoney-faced crêpe seller with a street stall. As I dug out a £20 Scottish banknote, he snarled: | Blank looks, confusion or even downright hostility, as I discovered in Canterbury last September thanks to a stoney-faced crêpe seller with a street stall. As I dug out a £20 Scottish banknote, he snarled: |
| We don't take those. The boss won't accept them | We don't take those. The boss won't accept them |
| For some frequent travellers leaving Edinburgh for England, past experience is enough. There is a wee ritual at Waverley: get your ticket, get your paper, and then head to the NatWest auto-teller beside the main ticket hall to fill the wallet or purse with Bank of England notes. | For some frequent travellers leaving Edinburgh for England, past experience is enough. There is a wee ritual at Waverley: get your ticket, get your paper, and then head to the NatWest auto-teller beside the main ticket hall to fill the wallet or purse with Bank of England notes. |
| As one banking official said with amused relish earlier today: | As one banking official said with amused relish earlier today: |
| Part of the sport is going down to England with Scottish notes. | Part of the sport is going down to England with Scottish notes. |
| Perhaps it will no longer be possible, let alone a sport, if the Treasury's carefully orchestrated warnings about the future of Scottish banknotes put out on Sunday evening are to be taken seriously. | Perhaps it will no longer be possible, let alone a sport, if the Treasury's carefully orchestrated warnings about the future of Scottish banknotes put out on Sunday evening are to be taken seriously. |
| On Tuesday, in what is being trailed as a detailed critique of the Scottish government's currency strategy for an independent Scotland, the Treasury is expected to point out that it is quite rare for a currency union to allow banks in a foreign country (in this case Scotland) to issue its own notes. | On Tuesday, in what is being trailed as a detailed critique of the Scottish government's currency strategy for an independent Scotland, the Treasury is expected to point out that it is quite rare for a currency union to allow banks in a foreign country (in this case Scotland) to issue its own notes. |
| It is due to argue, said a Treasury source, that independence would: | It is due to argue, said a Treasury source, that independence would: |
| fundamentally transform the role of the Bank of England with regards to Scotland. This specific role of the Bank of England would have to be reviewed accordingly. There is no guarantee similar arrangements could be maintained. In a formal sterling currency union, both governments would need to agree if the commercial banks in an independent Scottish state could continue to issue sterling banknotes. | fundamentally transform the role of the Bank of England with regards to Scotland. This specific role of the Bank of England would have to be reviewed accordingly. There is no guarantee similar arrangements could be maintained. In a formal sterling currency union, both governments would need to agree if the commercial banks in an independent Scottish state could continue to issue sterling banknotes. |
| It remains to be seen precisely what that report will actually say. Yet if either the Scottish or UK government's rhetoric on all being part of the British family and seeking meaningful and respectful dialogue on the constitution are to be taken seriously, it remains unclear how that threat would come into effect. | It remains to be seen precisely what that report will actually say. Yet if either the Scottish or UK government's rhetoric on all being part of the British family and seeking meaningful and respectful dialogue on the constitution are to be taken seriously, it remains unclear how that threat would come into effect. |
| If the Bank of England and UK Treasury were to ban Scottish banks from issuing sterling notes after independence, as part of a currency pact, that would imply a degree of hostility or a lack of trust which must surely challenge the viability of the entire deal. | If the Bank of England and UK Treasury were to ban Scottish banks from issuing sterling notes after independence, as part of a currency pact, that would imply a degree of hostility or a lack of trust which must surely challenge the viability of the entire deal. |
| At present, the three Scottish banks which issue their own notes – the Bank of Scotland, first to do so from 1695, the Royal Bank of Scotland, which began printing notes soon after being founded in 1727, and the Clydesdale, from 1839 - have to back up every single note with a deposit to the same value in the Bank of England. | At present, the three Scottish banks which issue their own notes – the Bank of Scotland, first to do so from 1695, the Royal Bank of Scotland, which began printing notes soon after being founded in 1727, and the Clydesdale, from 1839 - have to back up every single note with a deposit to the same value in the Bank of England. |
| There were 306,646,555 individual Scottish notes in circulation last year, says the Committee of Scottish Bankers, worth some £3.8bn says the Bank of England. | There were 306,646,555 individual Scottish notes in circulation last year, says the Committee of Scottish Bankers, worth some £3.8bn says the Bank of England. |
| While there may be no such thing as "legal tender" in the UK, there is such a thing as legal currency and there is a physical cash guarantee (underwritten, effectively, by Threadneedle Street) that a Scottish note is liquid and reliable. The Banking Act 2009 says so (worth remembering in Canterbury). | While there may be no such thing as "legal tender" in the UK, there is such a thing as legal currency and there is a physical cash guarantee (underwritten, effectively, by Threadneedle Street) that a Scottish note is liquid and reliable. The Banking Act 2009 says so (worth remembering in Canterbury). |
| The Clydesdale bank (owned by the National Australia Group) issues about £1bn worth of its own notes, in various denominations. It issues more than the other two. | The Clydesdale bank (owned by the National Australia Group) issues about £1bn worth of its own notes, in various denominations. It issues more than the other two. |
| And a spokesman said that £1bn worth is deposited in Threadneedle Street to back them up: | And a spokesman said that £1bn worth is deposited in Threadneedle Street to back them up: |
| We use a combination of Bank of England notes, UK coin and funds in both non-interest bearing assets and an interest bearing bank account at the Bank of England for 'backing assets', in line with the Banking Act 2009. | We use a combination of Bank of England notes, UK coin and funds in both non-interest bearing assets and an interest bearing bank account at the Bank of England for 'backing assets', in line with the Banking Act 2009. |
| So with a legally-binding currency union tying a future Scottish government into potentially quite onerous commitments on fiscal and economic responsibility, tying Edinburgh into accepting strict restraints on its borrowing, its taxes and its spending, then why shouldn't the deal now underpinning Scottish banknotes remain? | So with a legally-binding currency union tying a future Scottish government into potentially quite onerous commitments on fiscal and economic responsibility, tying Edinburgh into accepting strict restraints on its borrowing, its taxes and its spending, then why shouldn't the deal now underpinning Scottish banknotes remain? |
| Stewart Hosie, the SNP's Treasury spokesman at Westminster, certainly thinks so. He told BBC Scotland: | Stewart Hosie, the SNP's Treasury spokesman at Westminster, certainly thinks so. He told BBC Scotland: |
| Every single Scottish note in circulation is fully covered by a Bank of England note or coins or assets held by the Bank of England, which guarantees its value, that would not change under a currency union. | Every single Scottish note in circulation is fully covered by a Bank of England note or coins or assets held by the Bank of England, which guarantees its value, that would not change under a currency union. |
| But that presupposes there is a deal: one of the UK government's central objectives is to create public, political and – crucially – corporate anxieties that Scotland's true independence after a "yes" vote in September 2014 would be greatly diminished by a sterling pact. | But that presupposes there is a deal: one of the UK government's central objectives is to create public, political and – crucially – corporate anxieties that Scotland's true independence after a "yes" vote in September 2014 would be greatly diminished by a sterling pact. |
| The UK government position is this: the Bank of England would control sterling's value, with little or no regard to Scottish interests; it would also require a binding deal to tie Scottish banking interest rates to its own – rates again defined by the UK's needs, not Scotland's. It would want restraints on money supply too. | The UK government position is this: the Bank of England would control sterling's value, with little or no regard to Scottish interests; it would also require a binding deal to tie Scottish banking interest rates to its own – rates again defined by the UK's needs, not Scotland's. It would want restraints on money supply too. |
| And Nicola Sturgeon, Scotland's deputy first minister, again sought to soothe anxieties by downplaying the seriousness of this threat: | And Nicola Sturgeon, Scotland's deputy first minister, again sought to soothe anxieties by downplaying the seriousness of this threat: |
| The sharing of the pound between an independent Scotland and the rest of the UK is the common sense position supported by the facts. A sterling zone is in the economic interests of the rest of the UK every bit as much as it is in the interests of Scotland. | The sharing of the pound between an independent Scotland and the rest of the UK is the common sense position supported by the facts. A sterling zone is in the economic interests of the rest of the UK every bit as much as it is in the interests of Scotland. |
| An independent Scotland using the pound will mean sterling's balance of payments will be massively boosted by Scotland's huge assets, including North Sea oil and gas – which alone swelled the UK's balance of payments by £40 billion in 2011-12. | An independent Scotland using the pound will mean sterling's balance of payments will be massively boosted by Scotland's huge assets, including North Sea oil and gas – which alone swelled the UK's balance of payments by £40 billion in 2011-12. |
| UK government officials dispute the word "huge", pointing out that North Sea oil receipts are worth less than 2% of the UK's overall tax income. The Treasury warning raises another, far more political issue, which goes to questions about identity and confidence – ultimately the main issue confronting any banknote. It is a question the surly crêpe seller in Canterbury will recognise. (And he doubtless has the same hostility to Northern Irish notes). | UK government officials dispute the word "huge", pointing out that North Sea oil receipts are worth less than 2% of the UK's overall tax income. The Treasury warning raises another, far more political issue, which goes to questions about identity and confidence – ultimately the main issue confronting any banknote. It is a question the surly crêpe seller in Canterbury will recognise. (And he doubtless has the same hostility to Northern Irish notes). |
| After independence, Scottish notes would likely be far less accepted by retailers and businesses outside Scotland, regardless of a currency deal. | After independence, Scottish notes would likely be far less accepted by retailers and businesses outside Scotland, regardless of a currency deal. |
| And were a post-independence Scotland fail to accept a sterling pact with the UK, and pressed ahead with the far riskier strategy of using the pound unilaterally (something an country is entitled to do), they wouldn't be at all. | And were a post-independence Scotland fail to accept a sterling pact with the UK, and pressed ahead with the far riskier strategy of using the pound unilaterally (something an country is entitled to do), they wouldn't be at all. |
| And what of Scotland's three banks? | And what of Scotland's three banks? |
| It is also a difficult issue, particularly the largely still state-owned Royal Bank and Bank of Scotland. For all three, issuing their own notes is an essential part of their identity and, in a far more subtle but crucial way, their marketing. You can be certain they will now be starting intense conversations with the Treasury and Bank of England. | It is also a difficult issue, particularly the largely still state-owned Royal Bank and Bank of Scotland. For all three, issuing their own notes is an essential part of their identity and, in a far more subtle but crucial way, their marketing. You can be certain they will now be starting intense conversations with the Treasury and Bank of England. |
| These notes make up part of Scotland's national identity too – an issue Treasury sources were on Sunday evening highlighting quite deliberately. | These notes make up part of Scotland's national identity too – an issue Treasury sources were on Sunday evening highlighting quite deliberately. |
| With deliberate understatement, tomorrow's Treasury document is expected to suggest that the "weaker political commitment" of a currency union could impact on "confidence in the convertibility" of Scottish bank notes. | With deliberate understatement, tomorrow's Treasury document is expected to suggest that the "weaker political commitment" of a currency union could impact on "confidence in the convertibility" of Scottish bank notes. |
| Scottish notes are another distinctive unique identifier, alongside the Church of Scotland, golf at St Andrew's or the Forth bridge. The Australian-owned Clydesdale put Robert the Bruce, complete with golden crown, on the front and back of its £20 note. There are some stubborn Scots – alone of anyone else in the British Isles – who will still take out and use the Royal Bank's still generous supply of £1 notes. | Scottish notes are another distinctive unique identifier, alongside the Church of Scotland, golf at St Andrew's or the Forth bridge. The Australian-owned Clydesdale put Robert the Bruce, complete with golden crown, on the front and back of its £20 note. There are some stubborn Scots – alone of anyone else in the British Isles – who will still take out and use the Royal Bank's still generous supply of £1 notes. |
| Even though many Scots may rarely see or use them today, RBS printed up £10m worth of supplies of crisp, compact £1 notes in 2001. With some £17m worth of £1 notes still in circulation, it has still has another £5m ready to issue; they still have Edinburgh castle on the reverse and the bewigged bank founder Lord Lay on the front. | Even though many Scots may rarely see or use them today, RBS printed up £10m worth of supplies of crisp, compact £1 notes in 2001. With some £17m worth of £1 notes still in circulation, it has still has another £5m ready to issue; they still have Edinburgh castle on the reverse and the bewigged bank founder Lord Lay on the front. |
| The Clydesdale refused to respond when asked today about the Treasury's paper: this is far too political. And, said the spokesman, it is essentially hypothetical: | The Clydesdale refused to respond when asked today about the Treasury's paper: this is far too political. And, said the spokesman, it is essentially hypothetical: |
| I've seen the coverage this morning, to do with Scottish independence. It's speculation and we don't get into this sort of conversation. | I've seen the coverage this morning, to do with Scottish independence. It's speculation and we don't get into this sort of conversation. |
| For RBS and HBoS, its doubly difficult since both are state-owned. And the Bank of Scotland is no longer Scottish: it is part of the UK Lloyds Banking group, with London as its centre of gravity. Ask them to comment, and it is a one word reply: "no". | For RBS and HBoS, its doubly difficult since both are state-owned. And the Bank of Scotland is no longer Scottish: it is part of the UK Lloyds Banking group, with London as its centre of gravity. Ask them to comment, and it is a one word reply: "no". |
| But their original sugar daddy, the former Labour Chancellor Alistair Darling, who rescued them from collapse in 2008, is quite clear on his opinion: this question about banknotes and currency is absolutely critical. | But their original sugar daddy, the former Labour Chancellor Alistair Darling, who rescued them from collapse in 2008, is quite clear on his opinion: this question about banknotes and currency is absolutely critical. |
| In a blog for the pro-UK Better Together campaign, Darling said: | In a blog for the pro-UK Better Together campaign, Darling said: |
| We cannot, as the SNP have said in the past, just use the pound informally, in the way Panama uses the dollar. That would mean no central bank standing behind our banks or our mortgages. | We cannot, as the SNP have said in the past, just use the pound informally, in the way Panama uses the dollar. That would mean no central bank standing behind our banks or our mortgages. |
| He was more explicit on BBC Scotland's Good Morning Scotland, asserting that a currency union was "absolute nonsense" and "second best": | He was more explicit on BBC Scotland's Good Morning Scotland, asserting that a currency union was "absolute nonsense" and "second best": |
| A currency union takes you back to an economic union and then to a political union. Why go through all of this simply to end up where you started from? | A currency union takes you back to an economic union and then to a political union. Why go through all of this simply to end up where you started from? |
| In the same broadcast, Hosie again sought the soothing approach: | In the same broadcast, Hosie again sought the soothing approach: |
| This scaremongering that a currency union would to fiscal union, if you look at what happened between Belgium and Luxembourg, they had a currency union for 80 years. It didn't even lead to tax harmonisation; they're tax rates were different. They were able to compete with each other while sharing a currency. | This scaremongering that a currency union would to fiscal union, if you look at what happened between Belgium and Luxembourg, they had a currency union for 80 years. It didn't even lead to tax harmonisation; they're tax rates were different. They were able to compete with each other while sharing a currency. |
| I know that the unionists want to make this sound dreadfully difficult all the time, but I think instead of the hysteria, they should sit down, have proper discussions, proper negotiations and work out how this can work. Because it's in everybody's best interests, Scotland's and the rest of the UK's, that it does work. | I know that the unionists want to make this sound dreadfully difficult all the time, but I think instead of the hysteria, they should sit down, have proper discussions, proper negotiations and work out how this can work. Because it's in everybody's best interests, Scotland's and the rest of the UK's, that it does work. |
| So Darling, his successor as Chancellor George Osborne and Downing Street are deliberately forcing the pace on independence. It is still 17 months til the referendum. Confident that Scottish public opinion is already firmly against independence, they are prepared to enrage and fuel nationalist sentiment. | So Darling, his successor as Chancellor George Osborne and Downing Street are deliberately forcing the pace on independence. It is still 17 months til the referendum. Confident that Scottish public opinion is already firmly against independence, they are prepared to enrage and fuel nationalist sentiment. |
| With nationalists such as former leader Gordon Wilson and former deputy leader Jim Sillars both pressing for a new Scottish currency, and pro-independence allies the Scottish Green party arguing that adopting sterling should only be a short-term measure, the pro-UK campaign wants to intensify those divisions and anxieties. | With nationalists such as former leader Gordon Wilson and former deputy leader Jim Sillars both pressing for a new Scottish currency, and pro-independence allies the Scottish Green party arguing that adopting sterling should only be a short-term measure, the pro-UK campaign wants to intensify those divisions and anxieties. |
| As the Herald's leader argues: | As the Herald's leader argues: |
| Of all the arguments for and against Scottish independence, this must be one of the most arcane. Yet, as anyone knows who has had the experience of having a Scottish note refused by an English shopkeeper, it touches a raw nerve. The SNP is well aware of this. Hence the efforts of Alex Salmond and Nicola Sturgeon to reassure voters that, basically, nothing would change. | Of all the arguments for and against Scottish independence, this must be one of the most arcane. Yet, as anyone knows who has had the experience of having a Scottish note refused by an English shopkeeper, it touches a raw nerve. The SNP is well aware of this. Hence the efforts of Alex Salmond and Nicola Sturgeon to reassure voters that, basically, nothing would change. |
| So in this debate Scotland's banknotes are becoming a symbolic hostage. In one of those great ironies of the current constitutional settlement, the UK government is essentially arguing: "you get to keep your pound by keeping the union". | So in this debate Scotland's banknotes are becoming a symbolic hostage. In one of those great ironies of the current constitutional settlement, the UK government is essentially arguing: "you get to keep your pound by keeping the union". |
| • This article has been updated with new information from RBS about the £1 notes it has printed and in circulation | • This article has been updated with new information from RBS about the £1 notes it has printed and in circulation |
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