Arc of Prosperity

Scottish Independence within the EU – with a Scandinavian Slant


Dividing up the Bank of England like a CD collection

The Bank of England is avilable to rent...
The Bank of England is avilable to rent…, a photo by aminorjourney on Flickr.
During his brief visit to Edinburgh, George Osborne said that the pound is not a CD collection that can be divided up.

It was a bit misleading to talk about the pound when what he really meant was the Bank of England — what people commonly refer to as the pound is just the name of the currency it issues.

But why exactly can’t we divide up the Bank of England like a CD collection?

Let’s have a wee look at the BoE’s Annual Report from 2013 (PDF). On page 99 it states that the total assets are worth £58,022m (58 billion pounds), and the bank has put exactly the same amount into circulation as banknotes. This means that Scotland’s 8.3% population share last year was worth £4816m.

Now, obviously we can’t magically turn £4816m worth of banknotes into Scottish ones, so I guess what would happen is that the BoE would withdraw this amount of money from circulation and transfer the corresponding assets to a brand new Central Bank of Scotland, which would then be able to issue a corresponding amount of Pound Scots.

The amounts mentioned above don’t include the UK’s currency reserves (PDF), which belong to the Treasury (although they’re administered by the BoE). In August 2013 the gross currency reserves (including gold and all that) were worth $103,418m, and the net reserves had a value of $44,862m. I’m not an economist, but I presume it’s the latter that are of interest to us here. Scotland would in other words be due currency reserves (including gold) worth $3724m (or roughly £2232m).

Of course, it would hardly be great news for the stability of the Pound Sterling to lose such a great parts of the assets underpinning it from one day to the next, which is why it’s very likely the rUK politicians will start begging Scotland to accept a formal currency union soon after a Yes vote.

If the rUK politicians veto both a currency union and an asset transfer of Scotland’s share of the Bank of England’s assets and the currency reserves, then Scotland will definitely be entitled to refuse to accept any liabilities (in other words, Scotland will start out life as an independent country without a national debt).

11 thoughts on “Dividing up the Bank of England like a CD collection

  • Angus McLellan

    If I can nitpick, I am not quite convinced by your £4816m result. After all, there are £4100 million in Scottish notes (and a further £2150 million in NI notes) in circulation at the end of 2012-3, for a total of around £65700 million. [Info from the BoE interactive database, datasets LPWB95I (Scotland), LPWB96I (NI) and
    LPWBF82 (total)].

    On that basis, it seems more likely that there would be around £5500 million in banknotes circulating in Scotland, of which 75% or so would be fully covered by “Scottish bank” deposits at the BoE.

    • It’s quite possible you’re right. If the Scottish independence negotiation team decides to ask for 8.3% of the Bank of England, I hope they’ll ask some clever economists to work out the exact value of that share rather than relying on my calculations! 🙂

      To be honest, the point I was trying to make in this blog post is that the Westminster Treasury can’t simply say that the BoE is indivisible, that they don’t want a formal currency union, and that Scotland as a result isn’t getting any assets. If they rule out a currency union (which of course they’re entitled to, even if they’ll be shooting themselves in the foot doing so), Scotland will then be entitled to a population share of the BoE, whether they like it or not.

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