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12 September 2014Gareth Lodge
A somewhat topical post, if mildly parochial, but which serves to highlight something more broadly. On September 18th , a new nation could be born, as Scotland goes to the polls to vote whether it should become independent from the rest of the UK. The debate has raged for months, if not years. The latest polls suggests a Yes win, with a flurry of activity now from the No camp. Why blog about this? Well there are some interesting questions that would be raised in relation to payments that are worth highlighting here. Note that this is based on the hard line being stated primarily from the No camp before the vote, but one assumes compromises would be made if there were a Yes vote. Currency Whilst Scottish banks print and issue their own money currently (I have a Scotland-only £100 bank note on my desk), the Bank of England has categorically stated that there cannot be a shared currency. Debate rages about how quickly Scotland could join Europe, so equally the Euro is out as well Central bank Scotland would require a central bank to be able to issue a currency. The creation of one is not necessarily a technical challenge, but the funding of it in the short term might be. Big business Many big banks have already pledged to move their head quarters out of Scotland should there be a Yes vote – Royal Bank of Scotland, Lloyds (owners of Bank of Scotland) and National Australia Group (owners of Clydesdale). Note that this isn’t moving out of Scotland altogether – however, at least one unnamed source has hinted doing business in Scotland will become harder and less attractive. A new currency also means that every business doing business in or with Scotland would need to make the appropriate changes, and an equivalent changeover to the Euro switch would be required. So what does this mean for payments? Well, nobody quite knows. On day 1, systems could keep running. But longer term, it poses some interesting questions. The options crudely are: Keep as is – people continue to clear and settle in Sterling, regardless of location. Given the hard line on currency union (or lack of), this seems unlikely Shared infrastructure – the infrastructure remains, but is dual currency, with an additional settlement site at the new central bank of Scotland. That works for Scotland-Scotland, and UK-UK (the sort codes could be mapped to allow this). This doesn’t address the cross-border issue. Parallel infrastructure – Scotland recreates all its own systems. This would allow Scotland to plan the ideal system, and with low volumes, it would be relatively cheap to buy. However, it would require every bank and every corporate to change how they process paymenst as well… very expensive! So what does this mean for payments? The fate of a nation is a big thing, and we shouldn’t trivialise it for the thing I’m interested in – payments. But it does serve to highlight how embedded payments are and how critical they are, yet the debate hasn’t mentioned them once. Without a payment system, any country would collapse in hours. Nobody is suggesting that this will happen of course - but then nobody is actually suggesting *anything*. Because payments are rarely thought about by anyone outside of payments, it’s pretty safe to assume that no-one has considered this fundamental part of how a country functions, and it will need to be addressed rapidly. I best go dust off my passport and get some Scottish visas I think!