Independent Scotland Would Seek to Keep Pound; London Says No

"If the public debt stock were divided in proportion to GDP, both the residual U.K. and Scotland would be left with identical public debt ratios, and the residual U.K.'s debt profile would therefore be little changed. Our current expectation is that Fitch-rated gilts would remain the responsibility of the residual UK, which would enter into a separate bilateral agreement with an independent Scotland regarding how the latter would contribute to servicing and repayment," the ratings agency said.

Fitch also said that a split of North Sea oil—another Scottish independence hot button—would probably be reached by compromise rather than either a straight geographical or population-size determination, resulting in "marginal" budgetary impact. Overall, Fitch concluded, "Scottish independence would probably be neutral for the sovereign credit profile of the residual U.K. (England, Wales and Northern Ireland)."

Michael Fry, historian and Scots Tory who has come out in support of the nationalist position, cut through most of the arguments on whether Scotland might be "allowed" to retain the pound by saying in a highly critical opinion piece in The Scotsman that England could not prevent such a move without damaging its own economy.

Fry wrote, "Sterling is a fully convertible reserve currency, just like the U.S. dollar and the euro. Any country in the world can, if it wishes, make use of such a currency for both domestic and external transactions. Even Communist Cuba in effect utilizes the U.S. dollar, as a hard currency in parallel to its own soft peso, and it certainly does not ask permission from Washington to do this. Montenegro has adopted the euro, without being a member of the European Union or of its eurozone."

Hong Kong has also adopted the use of the U.S. dollar, "with no involvement from Washington," and when it first gained independence, Ireland retained the use of the pound, adopting it via the Currency Act of 1927. "I do not think Irish governments of those days were in the habit of asking permission from Westminster to do whatever the newly independent country, recently liberated by violence, wanted to do," he said.

Fry said the only way the U.K. could prevent Scotland's use of the pound would be "by abandoning sterling's status as a fully convertible reserve currency, which would entail introducing exchange controls." This would cause so many complications for businesses, if enforced, that London would end up " reducing itself to the same level in international commerce as Poland or Turkey." It would lose so much business, he said, that " [n]o doubt the world would take note of how this global financial center no longer wanted to be a global financial center."

The entire argument may be moot, and currency traders have a while to wait to find out. The referendum will not be held till September of next year, but 2014 marks the 700th anniversary of the Battle of Bannockburn, when the Scots routed the English. It remains to be seen whether tradition will be upheld.