In this series of articles, members of the Scottish Currency Group outline the case for a separate Scottish currency  – the Scottish Pound – to be established as soon 
as possible after independence; highlight the transformational opportunities this will bring to address economic and social challenges, and answer questions about how the change is likely to affect households and businesses.

How easy will it be to introduce a new currency?

This is a straightforward process. Other small countries, such as Slovenia, Slovakia, Latvia, Lithuania and Estonia, have all done this in recent years. Estonia managed it in under a year.

The most similar examples to Scotland are Botswana and Namibia. They both used to use the currency of their much larger neighbour, the South African Rand. In August 1976, Botswana replaced the Rand with the Botswanan Pula, despite the IMF telling them they were too poor, too small and too under-developed. The Botswanans said the advantages of having your own currency overwhelmingly outweighed any disadvantages.

They were proven right as two years ago, Botswana overtook South Africa in GDP per capita and it also now has a Sovereign Wealth Fund of over US$2000 per capita. Namibia likewise replaced the Rand with the Namibian Dollar in September 1993.

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When will the Scottish Pound come into use?

As soon as practicable after independence day, which means as soon as the Scottish Central Bank is ready and Parliament authorises it to proceed.

This is likely to be of the order of a few months after independence day but that depends on how long there is between a vote for independence and independence day.

Two to three years for a transition period would allow preparations for the currency to be completed. The exact timings for the release of the currency will be decided by the post-independence government.

How long will it take to create the Scottish Central Bank and be ready to release the new currency?

The Scottish Currency Group plan shows this to be about four years, of which 18 months or so of preparations can be done now before the Independence vote, funded from non-government sources.

The tasks that need to be done include commissioning banknotes and coins (production takes around a year), giving the one-year notice required by Visa and Mastercard for a new currency, building a Scottish inter-bank payments system, and establishing a framework for bank regulation.

Where will we get the money to have our own currency? Don’t we need to save up Foreign Exchange reserves before we can introduce the Scottish Pound?

This is a much-repeated and common fallacy. The new Scottish Pound will not be given out free of charge. Rather it is sold to us, and we use our existing sterling to pay for it.

The process of exchanging GB pound sterling for the Scottish Pound will create sterling reserves for the Scottish Central Bank.

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Who will issue the new currency?

The Scottish Central Bank, which we have named the Scottish Reserve Bank for illustrating our currency plan. The new banknotes will probably be like those issued by the Scottish banks at present, in other words, featuring people, events and symbols from Scotland’s landscape and history.

Scottish notes have never included portraits of the monarch, and it is very unlikely we would change that.

It is proposed that there should be a national competition to come up with designs that can then be voted on by the public. There are several companies, such as De La Rue, that can do the manufacturing.

Background information

Every new Scottish Pound will be sold to us in exchange for us paying pound sterling. So, if the Scottish Central Bank issues £40 billion in the first week, it will receive £40 billion gross of sterling as payment.

There will also be money going in the other direction to repay sterling loans. For example, your bank may replace your sterling mortgage with a Scottish Pound mortgage, in which case the new loan would be used to repay the old sterling loan.

So that must be deducted to arrive at the net balance. That balance becomes part of our Foreign Exchange reserves.

Note that the UK net reserves are US$78 billion (Bank of England data for September 2022), so pro-rata Scotland would need $8bn. In reality, Scotlandwill have a lot more.

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It is estimated that there is around £200bn that belongs to us (citizens, companies, councils and other bodies) and which will be gradually exchanged.

There are also around £130bn of loans (mortgages, credit cards, business loans etc). Allowing that some will keep some sterling, it is clear the Scottish Central Bank will end up with very large foreign reserves.

The Central Bank will also acquire the bond that backs the GB£4.5bn existing Scottish notes from RBS, Clydesdale and Bank of Scotland, and the £3bn of Bank of England notes and coins circulating in Scotland.

We expect the Central Bank will have of the order of £50bn pound sterling of reserves two years after introducing the currency.