Scottish banknotes carry a statement about the "promise to pay the bearer on demand".
Would that promise hold good following Scottish independence? Could a currency union work in a disunited kingdom? That is the question posed by a report from the UK Treasury due out tomorrow. Nothing is more fundamental to a country's prosperity than its currency. Yet tomorrow's report will suggest that an independent Scotland could lose its historic banknotes, first produced in 1696 by the Bank of Scotland.
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. An independent Scotland would retain sterling and Scottish banknotes as a part of that currency union.
This position is challenged both by the Treasury report and by a number of independence supporters. The Treasury report echoes the argument made by Alistair Darling last year: that there is a contradiction at the heart of the SNP's plans for sterling because it cannot speak of "full fiscal freedom" with one breath and a "full fiscal pact" with the next. The eurozone crisis has demonstrated why tight tax-and-spend restrictions are required to make a currency union work. An independent Scotland that left the Bank of England in control of the money supply and acting as the lender of last resort does not look very independent.
A similar argument has been made by a number of supporters of independence, including the Scottish Greens, economists Jim Cuthbert and Professor John Kay and former SNP deputy leader Jim Sillars, who believe an independent Scotland would be economically stronger with its own currency.
Even if Mr Salmond is right in his insistence that there is no legal bar to Scotland being part of a sterling zone, the whole issue is considerably more complex than he implies. What would prevent the Bank of England setting interest rates that suited the Thames corridor but not Scotland, for example? What mechanism would there be for the Old Lady of Threadneedle Street to set monetary policy, as it does now? If the Yes campaign is hoping to close debate on this key issue with bland assurances, it needs only to listen to the muttering from within its own ranks to see that it is unlikely to succeed.
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