Depositors in Scotland are pondering: should they withdraw their cash in British pounds now and hide it under the mattress, or should they open a new bank account with a bank branch in England and transfer their savings there before the separation?
As ‘Caledonia’ is about to decide, it is worth considering the potential consequences of a currency separation.
“On a recent journey to India, I needed to get rupees at Mumbai airport,” recounts a friend from Edinburgh.
“When I presented the pound banknotes printed by RBS, the ‘babu’ in the exchange booth added a 0.90 multiplier, explaining that Scottish pounds are worth 10 per cent less.” He added: “The portrait of Lord Ilay is not as convincing as that of Queen Elizabeth.”
Scottish travellers might already be used to facing such situations, where shopkeepers put less faith in the pound notes with the picture of a Scottish castle on the back, though this is still the same British pound sterling. Simply, the banknotes’ features are less known, less trusted and therefore more difficult to use abroad.
The currency is a major issue in the independence debate and could determine whether a Scottish separation would be a velvet divorce or a bitter War of the RosesAfter a ‘yes’ vote for the country’s independence, the Scots might end up with their own money, and the exchange booth clerk is expected to apply a factor when comparing it to the British pound.
But what exactly is the currency risk Scottish depositors would face?
Monetary history has some incidents to look at.
In 1993, when the Czechoslovakians split their country into two, they broke up the koruna in a few days. They had to be quick, because of a panicked run on the Slovak banks.
The Czechoslovakians’ switch from communist governance to democratic elections in 1989 became known as the ‘velvet revolution’, because of its smoothness. By the same token, the monetary separation in 1993 was called the ‘velvet divorce’.
When the two independent states of Slovakia and the Czech Republic were formed, the plan was to keep the Czechoslovak koruna in use in both countries for a transitional period. However, as Slovakia was less developed than the Czech part, it was inevitable that a new Slovak currency would devalue against the Czech currency.
