The image that comes to mind is of schoolboys squabbling in the playground, Alex Salmond proclaims that the pound sterling is the common property of both Scotland and  England.  George Osborne asserts that the pound belongs to him and he will not let it go. Both claims have some merit and both are irrelevant.   If Scotland did vote yes to independence, that would be the time at which sensible negotiations would start, preferably between grown-ups.

A continued currency union between Scotland and the rest of the UK would be a rational outcome, but one hard to reconcile with the Scots pursuit of independence.  The residual UK, making up 91½% of any monetary union, would want to exert oversight of Scottish fiscal and financial policy which it would not be prepared to reciprocate.  Whatever Scotland’s First Minister may say, there has to be a Plan B. 

       The obvious plan B is for an independent Scotland to have its own currency.  That is what independent states do.  If we look outside the troubled monetary union that is the euro, the countries with no money of their own are microstates too small for currency issue to make sense – like Monaco – or those – like Ecuador – whose history of monetary management is so dismal that they would rather leave it to someone else.

So we should contemplate the re-emergence of the Scots pound – my own preference is to restore the groat or the bawbee. With its own currency Scotland could pursue as independent economic policies as economic realities and EU obligations would allow.  

      What would a Scots pound be worth? Parity with sterling is probably about the right exchange rate. Scottish exports make up a greater fraction of Scots output than UK exports do of UK output – a consequence of oil and whisky. It is sometimes argued  that this would justify a higher value for the Scots pound.  But  most of the recorded gross value of oil and whisky exports is subsequently taken out of Scotland in costs and profits accruing internationally: while any Scots advantage vis-à-vis the world excluding the UK is offset by an imbalance in trade with the rest of the UK. 

One option, then, is to peg the Scots pound to the pound sterling.    Bank of England notes would circulate freely in Scotland, and Scottish pounds less freely, in the rest of the UK.  Ireland did this for the first fifty years after its independence. 

         In the modern world, other  currency pegs have been successfully sustained over lengthy periods. Hong Kong’s link to the US dollar has been maintained since 1983, and the exchange rate between the Danish Krone and the euro has been fixed since the formation of the eurozone.

But  both the Hong Kong dollar and the krone would certainly rise in value if they were not pegged, and the Hong Kong monetary authority, in particular, has accumulated massive reserves.  The Scottish situation would be different.

Scotland could presumably expect to receive a pro rata share of Britain’s gold and foreign exchange reserves. (independence negotiations would have the division  of UK assets and liabilities -as a central issue – the suggestion that Scotland might walk away from UK debt is another example of playground bluster).  But the £10bn or so that Scotland might expect is hopelessly inadequate to defend a fixed exchange rate from speculative attack in the modern world.  The likely outcome of a commitment to a fixed peg for the Scottish pound would be that these modest reserves would be handed over to a group of macro hedge funds as the Scottish Central Bank suffered its own black Wednesday.

         But a variable exchange rate between Scots and English pounds would be a nuisance both for individuals and business. even if, as would be likely, the rate  did not fluctuate much.  The queues at the bureau de change at Waverley Station would be the most visible manifestation, but the commercial consequences are far more significant. Both households and companies would have to decide how to denominate their assets and liabilities, and choose the currency in which they wished to trade. Many holders would probably prefer the familiarity of the pound sterling to the untested promise of the pound Scots.

That preference for a known present over an uncertain future is the trump card in the ‘no’ campaign’s hand.