There is a world of difference between using something and owning it. The pound sterling is used in Scotland. But it is owned by the UK Government. The pound sterling is not Scotland’s currency, it is the currency used in Scotland. 

The only way an independent Scotland could continue to use the pound sterling as its currency is if the UK Government agreed. This post is short and tries to explain the simple fact that the UK government oversees the Bank of England which is the exclusive issuer of the pound (other entities can issue pounds under licence from the Bank of England) and it is the BoE that oversees the payment clearing process of transactions in pounds.

When it comes to Scotland continuing to use the pound, the UK holds all of the cards. The UK Government could instruct the Bank of England to consider an independent Scotland “as if” it was still under its control and supervision, until such a time as Scotland took on its own currency. This is possible. But it would have to be categorised in the ‘unlikely to happen’ column despite the Sustainable Growth Commission idea of Sterlingisation.

Without an agreement from the UK Government, only physical pounds (the ones in circulation now or those that could be physically drawn from accounts in banks denominated in pounds) could be used in Scotland. There could be no digital use of pounds in Scotland by banks not registered or headquartered in rUK. No one would be able to buy anything in pounds with their cards or transfer funds electronically to anyone else unless they had a bank account with a ‘foreign’ bank.* (Please see the footnote that attempts to fully explain in detail how this would likely work given international clearing and payment systems).

To expand on the importance of the Bank of England, let’s take a simple transaction of buying a sandwich. This is the process that happens behind the scenes if you bank with a different bank from the shop owner:

Your bank (bank A) sends X money to the reserve account of the bank (bank B) used by the sandwich shop. Bank A debits your account X and credits the reserve account of bank B by X. The money is an internal transfer between the two reserve accounts held at the Bank of England. Without the Bank of England, it is impossible to make the payment in this scenario. These reserve accounts, held at the central bank, are also used for transactions between the private sector and the government and for transactions between private/commercial banks and the central bank. They are also how banks access physical funds to put into ATMs. They are at the very heart of the financial system. As Richard Murphy explains:

Central bank reserve accounts (CBRAs) are held by the UK’s commercial banks with the UK’s central bank – the Bank of England. As a central bank the Bank of England is owned by the UK government. It is responsible for the day-to-day management of the money supply in the UK; for the regulation of commercial banks in the UK and for managing the settlement of inter-bank debts in sterling, for the issue of which currency it is responsible. (1)

The Bank of England oversees millions of transfers every day and effectively “clears” the transfer of funds between reserve accounts. If the Bank of England does not offer reserve accounts to banks located in Scotland these payments would not be cleared and new physical money could not be accessed by Scottish banks. I am not saying this would happen, but rather that it would be down to the UK Government and not the Scottish Government to make the call on what funds are cleared by the Bank of England* (Again, this is a very simplified statement and the footnote gives more details).

There is a middle ground between the free-flowing and free exchange of funds in pounds sterling between entities in the financial services system and a total collapse. Maybe this is *only* longer delays in payments and millions of pounds in costs paid by customers, banks and the Scottish Government for ‘cross border’ transactions in Scotland. My hope is that the upcoming Scottish Government paper will explain exactly how a smooth transition would play out.

You can use something without owning it.

we would continue to use the pound, which is our currency as much as it is the rest of the UK’s

Nichola Sturgeon – October 7th 2022 (link to short interview on Twitter)

Our First Minister is wrong. 100% categorically wrong. We use the currency like everyone else but only one Government owns it. And that is the UK Government.

Without the express permission of the UK Government, Scotland can not, in any meaningful way, have a financial services sector that uses the pound sterling as its currency.

It is likely that I will add to this short post once we have seen the Scottish Government’s paper on the economics of Scotland.

But at this point, I think it is very important to stress that the Scottish Government is and would always remain a user of the currency issued by the Bank of England.


(1) Tax research, July 2022. Available here:


* Let’s assume I pay by a credit transfer (bank to bank transfer) as in the example. My account is debited £3.50 and the bank needs to decide where to credit the £3.50. If the sandwich shop account is with a different bank then the IT system of my bank will look at its payment routing tables and decide how to route the money. If they are both Sterling then this will be via a UK payment network such as Faster Payments. So my bank will route a UK Faster Payments message to the sandwich shop bank for the payment. The movement of money (clearing) would then happen later (Faster Payments works on a net settlement basis which is done 3 times a day) using the clearing accounts.

After independence, most of the banks in Scotland will be part of U.K. banking groups. So the part that sends the payment from Scotland to England – if it is within the same banking group – will be internal. My assumption would be they would use the same IT system for both U.K. and Scotland while both used the same currency. Unless there is a legal requirement to do so (such as the New Zealand regulation BS11 which states the New Zealand operations needs to be separate) there will be no / or little separation between the U.K. and Scottish parts of the U.K bank. Effectively this means that all our Sterling banks accounts continue to be U.K. bank accounts after independence and governed by U.K. law. So the payment problems would not happen unless the UK government decides to make it difficult. The movement of money is international, the IT systems involved are designed to work out how to get the money to its destination. However, cross-border payments can be slow and expensive (especially if they use a correspondent banking network).

With thanks to Peter Ryan @indybanking