Scottish independence: Calming market nerves
You don't usually question the promise in small print on a Bank of England note that the governor will "promise to pay the bearer...".
Yet the UK Treasury is making an unprecedented move today to emphasise just that to those who hold its bonds.
Why? Because it's picked up nervousness in the international money markets that the process of getting to Scottish independence could be a messy one for Britain's debt.
The cost of borrowing has been creeping up of late. A 10-year UK Treasury bond carries an interest rate of nearly 3%.
That's higher than Germany, France, Belgium and Austria, and not that far behind those whose interest rates were threatening to collapse the euro two years ago; Italy, Spain and Ireland, all below 4%.
There are various reasons for that which are unconnected with the referendum in September. But the Treasury wants to make sure that the Scottish question doesn't add to that cost, with an added risk premium.
It's worth making clear this is not a judgement on the credit rating of an independent Scotland. That's a contentious subject for another day. Today's announcement is about the UK's borrowing, and this year in particular.Ballooning debt
Now, both sides in the independence debate are agreed that Scotland should take on its share of Britain's debt. And with recent sky-high deficits, that debt has been ballooning north of £1 trillion.
The Scottish government's white paper anticipates negotiations on how big the Scottish share should be, and it looks forward to agreement also on an orderly transition.
It suggests two ways to divide the UK debt. One would refer to Scotland's share of spending and taxation since 1980, the period for which figures are available.
That's the outcome the Scottish government would prefer, as it comes in at the lower end of the spectrum.
Rather more expensive would be the much simpler option of a population share. The lower end has been calculated at around £100bn by 2016 (the intended date of independence); the higher one at £130bn.
Translate that into debt interest payments, and the white paper projects £3.9bn in 2016-17 at the lower end of the range, or £5.5bn for the population share of the debt. That's an uncomfortably large share of the budget, but ought to be manageable.Assets and liabilities
The catch is a dispute about the share of assets. If the Scottish government doesn't get the share it wants - including joint control of the pound sterling, which it sees as an asset - then Alex Salmond has said several times that Scotland may choose not to take a share of the debt. No share of assets: no share of liabilities.
That's raised eyebrows, if not yet interest rates, in the financial sector.
But the word from the Treasury and its Debt Management Office is that unnamed investors have approached them to ask what happens if there's a dispute over the division of debt. Would some bonds be left in limbo, with the risk of default, or at least confusion?
It may not be likely. But the markets measure risk by possibilities rather than probabilities. And the possibility of default raises the risk, and would therefore raise the price, of borrowing from those money markets.
So far, there's no evidence that that's being priced in. Perhaps it's because the polls are telling the markets that there won't be a 'Yes' vote.
But just in case, the Treasury is promising to pay the bearers of bonds issued up to the date of independence.Financial pariah
Doesn't that undermine its negotiating position - a position it has refused to set out?
Well, yes, but to a limited extent. Its negotiating partners in Edinburgh now know that it won't simply hand over debt to be honoured by Holyrood without an agreement being reached. But if they're realistic, SNP strategists should always have reckoned on that.
If it appears to put the Scottish government in a stronger negotiating position, then behind any dispute and refusal to take on liabilities is the threat of becoming a financial pariah.
As with individuals, refusing to pay what others perceive to be a legitimate debt is one way of freezing yourself out of the money markets, or at least making the cost of raising finance very high indeed.
You can be certain the Scottish government will want to avoid that in the early years of independence.
UPDATE 20:44 GMT
The news of Treasury moves to calm market jitters has raised Scottish government hopes that it could open the door to further negotiating ahead of the referendum.
The detail of the announcement has reminded us of the complexity of the issue; it's not just debt built up by central government, but future liabilities for pensions and nuclear decommissioning, and contingent liability for who's on the hook if the banks go under again.
There are also elements - big, but relatively small - for local government borrowing via central government coffers. And some publicly-owned corporations, including Scottish Water, carry wadges of debt.
The financial and political manoeuvrings also raise the question of how much an independent Scottish government would have to pay for the borrowing necessary to pay the Treasury for honouring that debt.
To explain, the promise from the Treasury is to honour debt for the UK as it now is. The part of it that is agreed to be Holyrood's would require the Scottish government to pay the Treasury. And so Holyrood would, in turn, have to find that money, by borrowing.
So instead of having to go out and find more than £100bn in 2016 - which would be a very tall order - it can work its way into borrowing at a slower pace.
The interest rate for those Scottish bonds would be set by the market. The National Institute for Economic and Social Research has done some work on that and reckons there would be a premium of between 0.5% and 1.5% over the UK borrowing rate.
Some of that might be explained by Scotland being an unknown quantity in the bond markets, needing time to reassure investors that its credit is good.
But NIESR reckons most of it would be explained by an issue over which the Scottish government has no control; liquidity premium. That is, the debt for bigger countries, including the UK, is easily traded. There is lots of it and there are lots of buyers.
But small countries have less debt in the market, and there are fewer buyers. Their bonds are in a less liquid market. So there's a risk that investors may find it difficult to offload debt. That risk comes at a cost.
The Scottish government can list the reasons why it thinks any premium should be minimised. Scotland would start with its debt as a smaller share of the economy than the UK has.
It can claim to have balanced its books through the devolution years, though it has had to, under the terms of the 1998 Scotland Act. And the SNP has argued vociferously that it should instead be freed up to run a deficit in order to prompt growth.
The Scottish government can also point to oil and gas tax revenue streams as a future source of security.
An the NIESR has suggested that Holyrood might like to swap its debt liability for some of that petroleum revenue tax. That could make financial sense, but less so politically, when to many Scottish nationalists, those oil funds have the status of a national birthright.