Last week, financial markets began to take seriously the possibility that Scotland might vote Yes to independence. A constitutional change would raise the possibility of three types of market risk: currency risk, government credit risk and the credit risk associated with financial institutions.
The position on currency is today a stand-off. The Scottish government has said it will negotiate a currency union and the Westminster government has said it will not enter such negotiation. But Edinburgh cannot unilaterally establish a currency union and the Westminster government cannot unilaterally determine Scotland’s currency. Plainly there must be agreement. However, might this agreement leave people who had made deposits or loans in sterling at risk of being repaid in Scots bawbees of doubtful value?
As the eurozone discovered, establishing a currency union is easy, operating one is hard and unwinding one is hard. You can pass legislation saying all contracts made in drachmas are now payable in euros; but legislation saying contracts made in euros are now payable in drachmas is another matter. To which contracts does the latter apply? However the question is resolved, the answer will hurt many businesses and individuals, and occupy the courts.