Tuesday, August 10, 2010

Scotland's banknotes - legal tender or not?

STV
By John Kilbride
10 August 2010 12:23 GMT

Can you use Scottish notes in England? English notes in Scotland? What's the bottom line on the currency question?

While most countries have a central bank that issues that country's currency, the situation is different in the UK, with a number of retail banks having the right to produce their own banknotes along with the Bank of England.

In Scotland, the Bank of Scotland, the Royal Bank of Scotland, and the Clydesdale bank all release their own banknotes. Four banks in Northern Ireland also produce their own banknotes.

Until the mid-19th century, all privately owned banks in Great Britain and Ireland were permitted to issue their own banknotes provided they had the means to support their value. Restrictions on banking that were introduced then meant that from then on, no new banks would be permitted to issue banknotes and only the Bank of England would be permitted to issue currency. The banks that did issue their own currencies gradually disappeared, but in Scotland and Northern Ireland several banks retained their right to issue banknotes, provided the value of the circulating currency is backed up by Bank of England notes of a similar value.

This can lead to some confusion for those visiting the country, and a source of irritation to Scots who find that their banknotes are not recognised by traders south of the border or elsewhere.

But it may come as a pleasant surprise to those who have had a Scottish banknote turned down by a shopkeeper south of the border to discover that notes issued by the Bank of England note are not legal tender in Scotland. Bank of England notes are recognised as legal tender in England and Wales only. Needless to say, Scottish banknotes are not legal tender in England and Wales, and a trader would be perfecly entitled to turn down a Scottish banknote.

However, Scottish notes - while the recognised currency in Scotland - are not actually legal tender in Scotland either. It is of course worth bearing in mind that some other means of payment such as cheques, credit cards or debit cards do not constitute legal tender either.

Of course, banknotes do not actually have to be classed as legal tender for them to be acceptable for a transaction. For example, a shop may accept Euros or US or Canadian Dollars despite these not being legal tender in the UK.

In Scotland, no notes are actually legal tender. Coins are the only actual legal tender.

The term 'legal tender' is key to the currency issue, as it only actually refers to a narrow definition of what is acceptable for the settlement of a debt, and does not carry any real practical meaning in everyday life. Just because a note (or other means of payment) is not legal tender does not mean that it is illegal or unacceptable.

In short, the notes are legal to use in Scotland and elsewhere in the UK, but traders may refuse to accept them, in the same way that they can refuse to accept cheques or turn down an offer of payment for a small item with a large note.

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