IS UK TREASURY TRYING TO MURDER THE SCOTTISH BANK NOTE?

HOLYROOD and Westminster clashed yesterday over the future of Scottish banknotes, with a claim from Alex Salmond that the Treasury is trying a “smash-and-grab” cash raid and a dismissal from Labour that the First Minister was “scaremongering”.

Mr Salmond’s attack voiced fears Scottish banks may be forced to stop issuing their own notes if proposed Treasury rules are put into effect. UK Government Chancellor Alistair Darling last week launched a consultation on measures aimed at improving financial stability and protecting depositors in the wake of the Northern Rock crisis.

This included the level of deposits banks are required to lodge with the Bank of England. The SNP leader claimed the changes could sharply raise costs for Scottish banks, as well as those in Northern Ireland, that issue their own notes and the possible cost could reach £100m a year – making the distinctive banknotes uneconomic.

In Scotland, three banks are allowed to issue their own notes: Clydesdale Bank, Royal Bank of Scotland and Bank of Scotland, which has been issuing notes since 1695. No other country allows commercial banks to issue branded notes. Under current laws, the banks have to lodge funds with the Bank of England to cover the value of their notes, but only for three days of the week. On the other four it can be invested elsewhere, gaining millions in interest.

However, the new proposals would require funds to be lodged with the Bank of England for the entire week. Mr Salmond yesterday claimed the changes were “the greatest threat” to Scottish notes since 1845, the year the Banknotes Scotland Act was introduced to regulate the procedure.

The First Minister said: “This is a real dagger at the heart of Scottish banknotes, which are a proud tradition in Scotland and hugely popular with the Scottish public. It would remove any advantage from issuing notes. I am certain one or more of the banks would stop the note issue.”
Mr Salmond also launched an attack on the Treasury and Mr Darling: “Under the cover of a consultation on financial stability, the Treasur y is launching a smash-and-grab at the Scottish note issue. What makes this particularly underhand and shabby is to cloak it in a document about financial stability.”

A spokesman for Clydesdale Bank said it was “very concerned” about the potential impact of the proposals and was seeking a meeting with the Treasury. He said: “If this were to go ahead it would force us to consider whether issuing banknotes would be viable, a position we do not want to be forced into.”