Economics of Independence

The Scottish Pound and the Illusion of English Money

Scottish MoneyScotland and the rest of UK are currently joined by not  just one union, but dozens of unions, these include: political, economic, trade, social, defence, in my case a family union, and the topic of the week, the currency union. Some of these unions work and some don’t, some work for one country, and not the others, and some still work for all countries.

Political Posturing – When you take political posturing and scaremongering out of the equation you are left only with the evidence, and that evidence points to an inescapable conclusion, that the currency union is one that works in the best interests of both Scotland and the rest of the UK in equal measure. The political union, however, works against Scotland’s interests and needs to be changed.

In my article Euro, Pound Sterling or Scottish Pound I demonstrate that maintaining the currency union post independence will help both Scotland with trade, and energy sales to the rest of the UK, and helps the rest of the UK by maintaining the sterling zone’s balance of payments at a manageable level (just).

For George Osborne and Danny Alexander to argue that it would not be in the rest of the UK’s interests to maintain a currency union with a newly independent Scotland amounts to political posturing, as they know the opposite is true, making it a counterfeit argument.


The Jersey pound!

One of the points they made this week is that “Scotland’s notes represent a ‘rare example’ of different cash being permitted across a single-currency area”.  Not that rare, the Isle of Man, Jersey and Guernsey are not in the UK or the EU but are in a currency union with the UK.  These islands are classified as Crown Dependencies and not sovereign nations in their own right.  Rather strangely though they have a great deal more devolution of power than Scotland does currently. Don’t need a passport to go there either!

Any outside expert looking at the arguments from a neutral standpoint would see the blindingly obvious truth of the matter, as have the foreign members of the Scottish Government’s Fiscal Policy Working group that contains some of the world’s leading economists and financiers, including two Nobel Prize winners.

So what is blinding the no campaign to the obvious post independence currency solution? Is it just political theatre, or is there something deeper going on in their psyche that makes them promote arguments with the intellectual rigor of “it’s our ball you can’t play”?

Could it be that unionists, even those who claim to be patriotic Scots, really believe that sterling is English money and that countries such as Wales, Northern Ireland and Scotland can only use it for as long as they are governed by a parliament based in London?

The illusion of English Money

Q – When is Scottish tax revenue not Scottish tax revenue?
A – When it is English Money!

Here is a short video interview (58 seconds) with Ken Clarke the former Tory chancellor.  An excellent example of how Westminster thinks regarding Scottish tax revenues;

Note – According to official Government stats in 2011/12 Scotland contributed £10,700 of tax revenues per head to the UK Treasury and the average contribution from the rest of the UK was £9,000 per head.  So Scotland pays more tax to Westminster per head than the rest of the UK (has done every year for 30 years), yet Westminster calls it “English money” and tries to lend it back to us with interest.

That, I think, gives an interesting insight into the belief system that underpins Westminster / unionist thinking on Scottish economics.  George Osborne’s intervention has inadvertently given the Scottish people a case study in the type of thinking we need to remove completely from the decision making process when it comes to managing Scotland’s economy.

No real threat to Scottish bank notes

If a Scottish retail bank wishes to print a bank note, it has to deposit one pound sterling with the Bank of England to guarantee the value of those notes.  The value of the Scottish notes in circulation is currently around “three thousand six hundred million pounds, (£3.6bn) and that is how much money the Bank of England would have to give back to the Scottish retail banks to stop them printing their own notes.  That would make it the most expensive pointless gesture in UK politics and one the BoE would rightly resist.


The pound sterling is not English money, it is British money, and just as with the Bank of England it is owned by the people of Britain in proportion to population.  The political union has long ago stopped working in Scotland’s favour, the currency union still makes sense and will be of equal benefit to both Scotland, and the rest of the UK if maintained. What hasn’t yet sunk in, is that a Scottish currency could be made to work for Scotland, but the threat to the rest of the UK would be significant if Scottish energy and Scottish exports were removed from the sterling zone’s balance of payments.

George Osborne appears to be saying that if Scotland votes yes he will commit political and economic suicide and ruin the rest of the UK’s economy, just to get back at Scotland.

A Bizarre, and totally political position for the Treasury to take, to say the least.

Further Reading

Well researched list of independent economic experts who disagree with the chancellor from Newsnet Scotland

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland Gordon ran a business strategy and social media, sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and Believe in Scotland.


  • I came across these comments by way of an internet search and despair at the irrelevance of the article and comment. The choice of an independent currency or a currency union is about the kind of banks you want to deal with – both personally or in business.
    Money today is electronic bank credit which is interchangeable with printed money at any ATM. That ‘money’ is not owned by you or by ‘the crown’ – it is owned by private banking corporations too big to fail and guaranteed by the taxpayer. It is their credit and your debt.
    Until more of us starts to ponder this simple fact and its implications then independence is a pretty empty word because whatever you choose the 1% who control your money also control you and your politicians.
    Googling up Scottish Monetary Reform will tell you more and it will be interesting to see if these remarks survive the site monitor….

  • In Mcphersons document he says:

    “‘And in the worst case scenario, it is more than likely
    that the increase in funding costs, which the continuing UK would face, would be smaller than that which would result from an ill thought out currency union
    with Scotland. ”

    Thats what the top government advisor says and I believe him. do you have any research that contradicts this? Please no scaremongering.

    Also, even the Fiscal commission mentions the likely hood that Scotland will move to another currency (Own or Euro) in the medium term. So the rUKs balance of trade will be screwed in the medium term anyhow.

    Currency union, particularly a temporary one, is not in the rUKs interest. They are not bluffing.

  • I to have come across this less exchange rate for Scottish notes in Israel there wasn’t a big difference say 10% but I s amazed and proud to see Israelis knew and except Scottish notes yet a cockney barman or shop keeper goes ape if you hand over a Scottish tenner ?? So much for the union

    • Have you ever been to London? In over thirty years I reckon I’ve only had a problem with Scottish notes about twice. Considering they are not “legal tender” anywhere in the UK that seems pretty good. They may get the odd look (not surprising as they are fairly rare down there). Have you ever tried using NI notes in Scotland? Good luck with that.

      • @Dave I have used NI bank notes in Scotland for years with never the slightest bother. You do get comments now and then so I would say your point there is probably made up.

      • not legal tender? they most certainly are not illegal tender, there is no such thing. In the UK it is down to the discretion of the seller whether to accept scottish pound notes or not.

        • The same applies to English notes and Isle of Man notes, Jersey Notes etc. Legal Tender, does not mean what people say it means it is a law to do with payment coining / note splits. If you try to pay a £1,000 bill in £1.00 coins you have not offered legal tender as there is a limit to which they must accept payment in pound coins etc- that is what legal tender means.

          Any retailer can unilaterally refuse and english £20.00 note and saying it is legal tender makes no difference. So lets end this note comments with some balance a chines exchange company has been offering a higher exchange rate for Scottish pounds than standard sterling Mega Foreign Exchange listed the Scottish pound in its exchange rates, valuing it higher than the English pound. Yesterday it was offering HK$11.50 for a Scottish pound but HK$11.30 for an English one.

      • I work in Tesco in Scotland and we accept Irish notes as long as they have Sterling written on them. Previous employer of Somerfield were the same…think only 1 of the Irish notes does not have Sterling on it but we accept the rest although not many of our customers like getting 1 in their change as a lot of other places don’t accept them.

      • Dave, you really, really got to get your facts right about this. You are correct when you say they ‘are not legal tender’, but they are ‘legal currency’. The following is from the Bank of England’s own website:

        “The term legal tender does not in itself govern the acceptability of banknotes in transactions. Whether or not notes have legal tender status, their acceptability as a means of payment is essentially a matter for agreement between the parties involved. Legal tender has a very narrow technical meaning in relation to the settlement of debt. If a debtor pays in legal tender the exact amount he owes under the terms of a contract, he has good defence in law if he is subsequently sued for non-payment of the debt. In ordinary everyday transactions, the term ‘legal tender’ has very little practical application.”

        Bet you didn’t know that English notes are not ‘legal tender’ in Scotland? But you don’t here us winging about that. No tight Scotsman jokes now 🙂

        I would agree with all the comments about NI notes. I have a shop and all my NI customers say they have no problems up here but do have them in England. It seems that the midlands is actually the worst place to be.

        I actually read a few years ago that the only note which is ‘legal tender’ in the whole of the UK is the English £1 note, which due to an error in an 1980’s law, is ‘Legal Tender’ in Scotland.

        So there you are, you learned something today. Pass it on to all the shopkeepers down south and tell them our money does not bite.

      • Only English places which take Scottish notes in my experience without question have been, Blackpool, Newcastle and Berwick. London shops looked at me as if the ink was still wet.

        Have brought NI notes back and used them in many shops in Scotland, never a bit of bother.

        If shops and establishments don’t want my Scottish notes, they don’t get my custom.

        Just checked the Scottish fiver in my purse. It states Five Pounds Sterling.

        In the words of Michael McIntyre. “I think you will find that’s legal tender”

    • On a visit to Múnich,several years ago, I found the Scottish pound was worth a fraction more than the English pound at the banks there.

  • It seems to me that Osborne at al will use a selective reading of Carney’s speech to put a veneer of legitimacy on what is a purely political decision. This is all very well. The question is: will the markets and UK wide businesses back it? I am assuming he must think so, and have evidence for such a belief. Anything else would be gross economic recklessness. I suppose we will find out soon enough. The press should be out there at the moment finding out! Already we have the Adam Smith Institute blog saying that this could be to Scotland’s advantage, and a blog on cityam saying much the same. A scottish pound pegged to sterling might well be the perfect solution.

    What about all the talk we hear Gordon about lender of last resort? What would this mean in practice?

  • I feel it would be worth getting a steer from Moody’s and or Standard & Poors on fUK’s probable credit rating without currency union. I suspect they would be struggling not to be downgraded with an increased per capita debt and less ability to service it.

    I think currency union would work for both countries as we need it to keep our exchange rate competitive for exports and England needs it to stop the pound falling further and impacting on interest rates.

    • UK can live with a downgrade. It’s better than risking your currency by allowing a foreign country to use it for the sale of a small difference to GDP figures and balance of payments. (I’m not convinced of these arguments but you must be pretty naive if you don’t think all political parties of the UK have not considered this). I would say they have considered the risk of currency union is too great and totally outweighs the benefit if Scotland were to vote yes.

  • […] Scotland and the rest of UK are currently joined by not just one union, but dozens of unions, these include: political, economic, trade, social, defence, in my case a family union, and the topic of the week, the currency union. Some of these unions work and some don't, some work for one country,  […]

  • What i dont understand is the fact that currently Scottish bank notes are worth less when exchanged abroad than the English bank note equivalent. In countries like Cambodia its 24% less. Does this mean that £1 Scottish will be worth less than £1 English in the UK as it stands abroad??

    • This is just not the case! There is no Scottish pound there is just pounds Sterling and some notes of Pound Sterling are designed differently. Some Asian exchanges have been known to offer more as they can sell them on to collectors but I have never heard of anyone offering less. If you have, then fair enough but a Clydesdale Bank note etc is absolutely worth as much as a note printed in any part of the UK.

      The only potential difference in currency valuations would occur if Scotland launched its own currency and the most lily outcome is that Scotland currency would be worth more than the rest of UK’s so we would have to devalue / peg our currency to sterling so that exchange rates didn’t make scottish goods and services to expensive for the R UK to buy. For example Scotland is a net producer of electricity 25% of what we produce is exported to the rest of the UK, they it benefits the rest of the UK to have the same currency as much as it would benefit Scotland.

      • I had a problem in Poland where my Scottish notes were viewed as suspicious and I was offered less for them, It’s not surprising this happens when you consider that in Gibraltar where I was in 2001 the British bank gave the shopkeepers less for a Scottish pound forcing them to surcharge tourists. Ohh and the British bank in question, the Royal Bank of Scotland!

      • UK can live with a downgrade. It’s better than risking your currency by allowing a foreign country to use it for the sale of a small difference to GDP figures and balance of payments. (I’m not convinced of these arguments but you must be pretty naive if you don’t think all political parties of the UK have not considered this). I would say they have considered the risk of currency union is too great and totally outweighs the benefit if Scotland were to vote yes.

        • Really what would the UK balance of payments be with our Scotland and whats would the debt to GDP ratio be without Scotland’s higher GDP?

          The No campaigns arguments are made by people who don’t know the basic facts and just repeat tribally what they have been told by the institutions. Do some research and compare Greek and UK balance of payments and think about what you are finding. Naive is the definition of someone who thinks that the Westminster chancellor / pretenders won’t say anything to stop Scotland oil reserves, natural resources, renewable potential and ability to host nuclear weapons from under Westminster control.

      • We get a lot of electricity from France as well and we have a separate currency from them so it’s not difficult for Scotland to export to the UK using different currencies. This site seems to be consistently underestimating the ability of the UK to cope after separation. I would rather we took the risk.

  • The BoE doesn’t hold anything like enough bullion to back up the pounds that it issues so the pound is actually a fisat currency, mere worthless scrip given value only by the say so of The Powers That Be. I suppose that Scotland owns a share of the bullion that survived the sale by Gordon ‘the balloon’ Broon so that at least something to start off our own bank.

  • I would be interested if the YES Campaign explored the principle of pro indiviso ownership of UK assets.

    This is a basic principle of Scots law and means that if more than one person or institution has a share in an asset then it cannot be sold unless all with an interest agree. A majority cannot force the minority to sell. Failure to agree between the owners requires a legal action of division and sale.

    If we apply this principle to the Bank of England then the practical effect is that neither side can unilaterally impose it’s wishes on the other without agreement and the size of one’s share is not

  • What Osborne said was that he didn’t think that the population of the rest of the UK would agree to letting Scotland be part of a currency union – thus seeking to make it an entirely political issue. To me, his threat seemed to be mobilising rUK public opinion against monetary union. It reminded me of something that happened when I was at school. There weren’t enough books to go round, and the boy next to me wanted to have one to himself. He demanded I give him mine; I refused. “Right,” he said, “I’m going to make you really unpopular.”

    Grow up, Boy George.

  • Gordon, this is the first of your posts on the Scottish independence subject that I have come across (will have to catch up on the rest)so I’m just here to say ‘Hello’ and I am sure I’ll be back soon.

  • Another interesting and valuable article Gordon, thanks. One question I had flowing out of this, is what the potential impact would be to rUK and sterling, if Scotland were to go with their own currency. Is there any view on specifics – on currency value, borrowing rates etc? If Sterling today dropped by the amount represented by the Scottish economy what would happen, how would markets respond?

  • Ken Clarke calls it English money, then corrects this to British Money. But is it not really UK money? Northern Ireland is not part of Great Britain.

    • Northern Ireland is part of Great Britain…they have MP’s in parliament too.

      • Northern Ireland is NOT part of Great Britain. The term Great Britain refers to England, Scotland and Wales as they are all one island. Northern Ireland is part of the United Kingdom or to give it’s full name – the United Kingdom of Great Britain and Northern Ireland

  • We will surely negotiate currency status after independence, like everything else. Osborne’s claims that he owns the currency are nonsensical:

    Great Britain is a geographical term, describing the largest of the British Isles, not a Churchillian poliitical concept for Cameron to play with when in his Thatcherite mode.

    The Union of 1707 was also a territorial union of two kingdoms.

    When a major part of the territory ends the association, it is not a secession, but a dissolution of the partnership. There is therefore no rump, or successor state, but two new states, Scotland and England and NI. It is time we had an authoritative legal ruling on this, and not just comments by buffoons like Barroso.

    The future of the pound is therefore up for negotiation, not diktat by Osborne.

  • I agree apart from the fact that the Bank of England is actually a private company and not owned by the people of Britain. Also, can anyone shed any light on the reason why there is no ‘legal tender’ in Scotland ? Surely there is a reason behind this strange anomaly.

    • The bank of England was nationalised in 1945 (if I remember rightly) and although it owns certain ltd companies (Bank of England Nominees Limited) and has operational independence granted by Gordon Brown as chancellor in 1998, the assets of the BoE are publicly owned.

      Legal tender is an often misunderstood term, for example if you pay a bus fare in 1p coins then even though they are real 1p coins its not legal tender as you are only allowed to pay a certain amount in 1ps before moving to larger coinage, 5ps before moving to larger coinage etc. A shop keeper has a right to refuse any note for any reason if its dirty etc or if he or she is unfamiliar with the design. So for example if a Glasgow shop keeper were to say I don’t accept English notes that would be equally as annoying as not getting Scottish notes accepted in England but nothing to do with the legal tender laws. Which I would have to look up but I think they do apply in Scotland as well as the rest of the UK.

      • thank you mr Kemp you comments on “where does Scotlands money go” was succinct and informative. quite devastating really. a fine sword to lay the proud usurpers low

    • I remember from somewhere that technically ‘English’ notes aren’t legal tender either. It (I think I remember correct) is down to the Bank that holds the Bullion, i.e. B of E to garentee payment of any currency. As no banks in UK outside of B of E hold bullion none can do this. It is very much confused because the B of E should have been called the B of Britain/UK. So Scotland has as much right to say its money is legal as England. As with so much else it becomes assoumed the everything is English rather than British/UK.

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