Chancellor George Osborne and his Labour shadow Ed Balls have insisted that, if the Scots vote for independence, they will not be able to retain sterling as their currency.

That decision is unlikely to be theirs to make. The banks authorised to issue Scottish notes by the Bank of England will most likely act in their own interests to avoid uncertainty after the referendum.

Most people in Scotland assume that, since Scottish bank notes promise to pay the bearer in sterling, they are legal tenure in England. That is not the case, and Bank of England notes are not legal tender in Scotland.

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However, the concept of legal tenure does not govern whether a banknote is acceptable in transactions. This is essentially a matter of agreement between the parties involved in the purchase and sale of goods, which means that large organisations will generally accept Scottish banknotes while small corner shops need not take them.

This agreement between buyer and seller is possible because the holder of Scottish banknotes is provided with a level of protection similar to that enjoyed by the holder of a Bank of England note.

Scottish banks are required to hold sufficient assets with the Bank of England to support the issue of their notes, using a combination of Bank of England notes, UK coin and funds in an interest-bearing account at the Bank of England. The Bank of England banknotes held as backing assets may include £1 million notes (Giants) and £100m notes (Titans), which are held at the Bank and may be used should a Note Exchange Programme (NEP) be implemented. There are two main circumstances for initiating this: bank insolvency and a bank voluntarily deciding to withdraw its notes.

Before independence became a serious issue, it was assumed that the main reason for an NEP would be bank insolvency. A failed Scottish bank would no longer be allowed to issue notes and the Bank of England would make arrangements for existing notes to be exchanged and permanently removed from circulation.

Another reason for an NEP could be if a Scottish bank decides to stop issuing its own banknotes under what is referred to as voluntary cessation. In this case, a bank would give a minimum of two months' notice of the cessation and of the arrangement in place to enable banknote holders to exchange their notes. The Bank of England would facilitate the arrangements.

After a Yes vote in the referendum, one thing is certain: the banks will act to protect their interests. It is highly likely that the banks authorised to issue Scottish banknotes would apply for voluntary cessation before the setting up of an independent state.

It would also be wise for them to do this together. Faced with uncertainty about the future currency of Scotland and the outcome of negotiations between Edinburgh and London, the Bank of Scotland, the Royal Bank of Scotland and the (Australian-owned) Clydesdale Bank would be likely to apply for voluntary cessation to protect their assets. These banks and the Bank of England would facilitate an NEP, which would have the effect of maintaining a sterling zone throughout the British Isles.

Bank deposits, which make up 97% of the amount of money in circulation and are mainly managed electronically as sterling, are not likely to be affected. The anomaly of financial transactions based on informal agreements rather than legal tender would come to an end.

Under the current agreement, the Bank of England could not refuse to return the assets they hold belonging to the Scottish banks and, if these banks acted in concert, the only valid currency in Scotland would be sterling in Bank of England notes.

The private banking system would continue to operate with sterling, Scottish workers would be paid in sterling and taxes would be gathered in sterling. Because of the interests of the private banking system, sterling would be the Scottish currency by default, despite what the politicians say. The implications for Scottish governance are another issue.