Scotland politics

Scottish independence: SNP dismisses threat to banknotes as 'scaremongering'

scottish bank notes
Image caption Three Scottish banks are able to issue their own notes

A UK Treasury warning that an SNP plan for a currency union after independence could result in the end of Scottish banknotes has been dismissed as "scaremongering" by Nationalists.

The Scottish government wants to keep the pound if Scotland votes in favour of independence in September 2014.

A Treasury report will say Scotland and the UK would need to agree if Scottish banks could still issue sterling notes.

The SNP said there was no reason why the current arrangements would change.

The UK Treasury - which will publish a full report on the currency plans on Tuesday - said independence would "fundamentally transform" the Bank of England's role with regards to Scotland.

The UK has shared a common currency for more than 300 years.

But a Treasury source said the responsibility of the Bank of England, as the central bank of the UK as a whole, for regulating the issuing of notes by commercial banks would have to be reviewed if Scotland voted for independence.

It said that the arrangement was a rare example where different notes are printed and accepted across the same currency area.

The Treasury argues it is because the Bank of England is formally responsible for regulating the issuance of notes by commercial banks that Scottish banknotes are worth as much as Bank of England banknotes.

The report will suggest the "weaker political commitment" of a currency union may also affect the wider public acceptability and "confidence in the convertibility" of Scottish bank notes.

The Scottish government said the existing situation relating to Scottish banknotes would remain in place within a post-independence currency union.

A spokesman said: "An independent Scotland will retain the pound. The UK government has stated that there is no legal bar to an independent Scotland having sterling as its currency and the evidence, including the views of world-leading economist Joseph Stiglitz, shows that it is in the best interests of both an independent Scotland and the rest of the UK to have a sterling zone."

The SNP's Westminster Treasury spokesman Stewart Hosie dismissed fears over Scottish banknotes as a scare story from the UK government.

Media playback is unsupported on your device
Media captionAlistair Darling and Stewart Hosie clash over plans for a currency union

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."

Scotland's Finance Secretary John Swinney said: "If this scare story is the best UK Chancellor George Osborne can do in advance of his visit to Scotland then it betrays the utter weakness of his case."

Prof David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, said: "There are clearly things to be worked out but a lot of this sounds like political posturing rather than economics.

"It is hard to argue that in fiscal terms under this union Scotland could have possibly done worse than UK Chancellor George Osborne has done and the evidence is that actually Scotland has been doing better. So we have to get the economics right."

The first Scottish bank notes were issued in 1696 by the Bank of Scotland, but today three banks issue notes in the country.

Related Internet links

The BBC is not responsible for the content of external Internet sites