The idle ramblings of a Jack of some trades, Master of none

We came back from Scotland wielding gleaming Scottish pound notes and handed one to the minicab driver who brought us home from the train station.

"What is this?" he asked.

"£20," I replied, waving the note issued by Clydesdale Bank in his face.

He turned to look at me, aghast.

"It's Scottish money," I said.

"What!" he yelped. "I want English money. I can't do anything with this."

He was, of course, a recent immigrant into this country, and unaware of the glorious tradition of the land that allows the Scots and the Northern Irish to print their own money. And he probably didn't go anywhere near a bank either, to change the money into something he considered suitable. So I had to poke around and shovel a handful of coins into his eager hands.

Three Scottish banks print money: Clydesdale (an example of a £5 note from 1865 to the left), Halifax Bank of Scotland, and the Royal Bank of Scotland. There are several advantages to doing so. One is called seigniorage, a profit one accrues by selling one's notes to other banks (it's the difference between the face value of the note and the cost of producing it). The second is - interest! The three banks are required to hold reserves at the Bank of England - UK's monetary authority - equal to 95% of their printed circulation, but only from Friday to Sunday. From Monday through Thursday, the reserves can be placed with other banks or invested in other assets to earn interest. During that time, if the issuing bank goes under, anyone holding its banknote will find that he or she cannot redeem the money. He or she, in other words, is sunk.

The banks earn a tidy sum in interest and seigniorage, and would stand to lose most of it were a recent decision by the Treasury to force the banks to maintain their reserves all seven days of the week to become law. It would no longer be worth their while to print money. The nationalist government in Scotland is outraged. Scottish banks are amongst the stablest in the world, they claim.

Of course, people spooked by the recent bank runs on Northern Rock would very likely appreciate the additional guarantees consequent to the order by the Treasury.

Check out a history of Scottish banknotes here.

The Economist is where I encountered this story recently.


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