If established, following a vote for Scottish Independence and a subsequent enabling Act in the Scottish Parliament, the bank would be responsible for conducting monetary policy, oversight of the financial system and will be responsible for the issue of banknotes for the new proposed Scottish currency, the Scottish pound.
Set–up
Through their 2022 Building a New Scotland prospectus papers, the Scottish Government said it was government policy that, following independence, Scotland would "continue to use the pound sterling for a period before moving to our policy of adopting a Scottish pound".[2] Whilst still using the Pound sterling currency, monetary policy in Scotland would continue to be set by the Bank of England until the introduction of a Scottish pound was completed, thereafter, monetary policy would shift from the Bank of England to the Scottish Reserve Bank.[2] In 2022, the Scottish Government advocated that the bank would be established "with oversight of monetary and economic conditions in Scotland and with responsibility for financial stability".[2]
In the event of Scottish independence, the Scottish Government has committed itself to "working closely" with the Scottish Reserve Bank to "design an institutional model for financial regulation" in regards to the financial services sector in the country.[3]
Phases
The Scottish Reserve Bank (or Scottish Central Bank), would be responsible for reporting on the economic criteria and conditions for moving to a Scottish pound, liaising closely with the Scottish Government and Scottish Parliament on both issues.[2] The Scottish Government proposed two phases for the introduction of a currency policy post–independence.[3]
Phase 1 – Scotland would continue to use Pound sterling, alongside the rest of the United Kingdom. The Scottish Government states that the continued use of the Pound sterling in the interim period following independence would allow time for new institutions to be created, such as a central bank for Scotland, and the opportunity for independent and newly established financial systems to develop credibility.
Phase 2 – A new Scottish pound currency would be introduced. The Scottish Government proposes that this would "take place as soon as practicable through a careful and managed transition". The Scottish Parliament would be responsible for determining when the economic conditions are stable enough for the introduction of a new currency. The government proposes that part of the remit of the post-independence Scottish Central Bank would include advising on economic conditions, with the role of the Scottish Central Bank expanding during this phase.
Functions
As with other international central banks, the Scottish Reserve Bank would be responsible for setting interest rates and maintaining financial stability under a new Scottish currency, the Scottish pound.[4] If a currency union with the United Kingdom were to be adopted instead, then the Bank of England would continue to set interest rates for all users of the Pound sterling (which would include Scotland), and Scottish inflation rates would not figure in their considerations.[4]
Other banks
HQ of the Bank of Scotland in Edinburgh. The Bank of Scotland would continue as a clearing bank, and upon independence, become "domiciled" in the UK
Other banks in Scotland – the Bank of Scotland, Clydesdale Bank and the Royal Bank of Scotland, would, upon independence, be "domiciled in the rest of the United Kingdom", and as such, will have access to liquidity from the Bank of England.[4] In the event of independence, it is likely that the three Scottish clearing banks would continue to trade in Pound sterling due to both individual and company preferences from each bank.[4] In the event that the Scottish Reserve Bank required Pound sterling to meet the liquidity needs of entirely domestic Scottish banks as lenders and depositors withdrew Pound sterling funding, then this could be accommodated by a swap-line arrangement with the Bank of England should the three clearing banks in Scotland continue to do business in Pound sterling.[4]
It has been suggested by Dr Iain Hardie of the University of Edinburgh that such swap–line arrangements could provide complications perceived as "problematic" for the Scottish Government, however, Hardie has argued that this would be "unlikely given the broad range of international precedents".[4]
Ability to borrow
The Institute for Government suggested that an independent Scotland would "need to adopt fiscal policy that international debt markets would view as sustainable", and suggested that Scotland would "struggle to borrow much more than 3% a year, requiring a 4–5% (£6.5 billion–£8.5 billion) consolidation".[5] Additionally, the Institute for Government said that Scotland would be required to "reduce its deficit to around 3% of GDP each year in normal times", which is a requirement for all new member states of the European Union, in which the Scottish National Party (SNP) led Scottish Government has advocated for following independence.[5]
In their assessment of the Scottish Government's ability to borrow following independence, the Institute for Government highlighted a number of areas for consideration:[5]
Small countries, such as Scotland (with a population of 5.4 million in 2022), pay a premium over bigger countries because their debt markets are less liquid
Scotland’s lack of a track record could be a reason for higher borrowing costs as potential investors would take time to be reassured that Scotland would repay its debts
The currency choice of an independent Scotland could also be a reason for higher interest rates as "investors may need to be compensated for possible fluctuations or devaluations against the major global currencies"
If Scotland created a credible financial growth plan, then this would be viewed as more of an attractive proposition for investors and improve its public finance position.[5] Additionally, the Scottish Government, as argued by the Institute for Government, would have to ensure that there were robust measures in place for institutions across the country, such as the Scottish Reserve Bank, to engage in an effective and proactive manner with global debt markets.[5] The Institute for Government estimate that the "interest rate on Scottish bonds could be around 0.4–0.9% higher than United Kingdom bonds, even after Scotland had established its reputation with lenders".[5]
Upon Scottish independence, Scotland would "receive the assets present in its territory and be required to issue debt to replace an appropriate share of the UK national debt" according to Dorothy Livingston from Herbert Smith Freehills Kramer.[6] In an assessment conducted by the UK House of Lords in 2012, it was suggested that an independent Scotland could inherit 8.4% of UK National Debt, the ratio of Scottish debt to Gross Domestic Product (GDP) would be approximately 61.6%.[7]
The Scottish Government has suggested that the Scottish Reserve Bank, as the central bank of Scotland, would "not require foreign exchange reserves as it would not be intervening in foreign exchange markets".[1] The Scottish Government has, however, suggested that the Scottish Central Bank would "hold and build Sterling reserves to ensure smooth operation of the payment system, short-term liquidity and for lender of last resort functions".[1] The Scottish Central Bank would hold reserves in Pound sterling upon independence for "functions related to its role of maintaining financial confidence and the stability of the system" in an independent Scotland, with the Scottish Government "putting plans in place for the necessary level of Sterling reserves for day one of independence".[1] During the transition period from Pound sterling to the Scottish pound currency, the Scottish Government has advocated that they would "ensure that both foreign exchange reserves and sterling reserves are sufficient before the transition period begins".[1]
Currency
Scottish pound
Following independence, Scotland would have several options available for usage of a currency under the macroeconomic framework. The two preferred options of the Scottish Government are to either retain Pound sterling on a permanent basis, and thus creating a currency union with the rest of the United Kingdom, or establish a new currency, the Scottish pound. It has been suggested by the Scottish Government that both options would "require different institutional arrangements with different monetary policy tools to manage the economy".[3] Dr Iain Hardie, Senior Lecture in International Relations at the University of Edinburgh, suggested in 2022 that an independent Scotland with its own currency would "would not be a fiscal free lunch and would require Scotland to establish a reputation for responsible economic policies".[4] Additionally, Hardie argued that the creation of a new Scottish currency "would involve a lengthy transition period during which use of the Pound sterling is likely to remain high".[4] Hardie concluded that the establishment of a new Scottish currency, the Scottish pound, would be the best option available for an independent Scotland.[4]
The currency options open to an independent Scotland would be affected by the percentage of the UK National Debt an independent Scotland would inherit following independence, with further influences being drawn by the Scottish economy structure, potential economic growth and resilience to external market complications.[8] In October 2025, the Scottish Government announced that it would expect "the bulk of transactions through the banking system in an independent Scotland to be in the Scottish pound".[9]
During campaigning for the 2014 Scottish independence referendum, the preferred option of the Scottish Government was that Scotland would retain Pound sterling and operate within a monetary union with the United Kingdom. As a result, the Bank of England would be the central bank for both the United Kingdom and an independent Scotland.
Despite previous suggestions that the United Kingdom would refuse to enter a currency union with Scotland, the Scottish Government has long insisted that Scotland would be permitted to use the Pound sterling without the agreement of the Government of the United Kingdom.[10] One argument of the Scottish Government is that the Pound sterling has been the currency of Scotland "for centuries", and as an internationally traded currency, there is no legal basis to preventing an independent Scotland to continue to use the Pound sterling.[11]
The continued use of Pound sterling as the main currency of an independent Scotland was recommended by the Fiscal Commission of the Scottish Government. The commission argued that retaining Sterling would provide a “strong overarching framework for Scotland post- independence, and a shared currency would be in the interests of the United Kingdom given the trade and financial links with Scotland".[8] During referendum campaigning in 2014, the UK Government strongly opposed the idea of the creation of a "Sterling Area" agreement, which would have permitted Scotland to retain the Pound sterling as its legal currency, with the Chancellor of the Exchequer claiming that any form of currency union between the United Kingdom and an independent Scotland was "not going to happen".[12] Whilst the Scottish Government argued a currency union would be beneficial for both Scotland and the United Kingdom, the British Government disputed this view, saying that a currency union between the two countries would not be beneficial as "currency unions don’t work without close political and fiscal integration". George Osbourne, the Chancellor of the Exchequer during the 2014 referendum, cited the Eurozone as an example, advocating that "currency unions are very difficult without fiscal or political union, and can expose all their members to significant risks".[13]
As is the intention of the Scottish Government, the continued use of a Scottish pound would be highly unlikely should Scotland apply to join the European Union, as it is a requirement of all new European Union member states to formally adopt the Euro as their legal currency.[6][14]
The Scottish Government has argued that the European Commission has made clear that there is currently no set time scale "for member states joining the eurozone".[15] Additionally, the Scottish Government has advocated that Scotland would only apply to join the Euro currency and Eurozone if the conditions of the convergence criteria were met, and when the Scottish Parliament voted in favour of doing so.[15] The Economic and Monetary Union of the European Union has made it clear that member states of the European Union "will only join the euro when it is ready, and the convergence criteria are there to ensure that introducing the single currency would be desirable both for the member state and the eurozone as a whole".[15]
The Scottish National Party led Scottish Government have been met with opposition and criticism over their financial policy plans which has been described as "shambolic" and "a fantasy" by opposition parties in the Scottish Parliament, such as the Scottish Liberal Democrats.[16]First Minister of Scotland, John Swinney, suggested in October 2025 that in the case of a financial crisis, the Bank of England would assist financially.[17]
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