If Scotland decides to leave the Union, what will it use as its currency? As an independent sovereign state, it can't use sterling. Because it won't immediately be (if ever) admitted to the Eurozone, it can't use the euro. Scotland will therefore need a new currency - let us call it the 'dram'. Drams could be issued by a new Scottish central bank and drams could simply have a floating exchange rate or a fixed exchange rate with sterling. Alternatively, Scotland could return to its historical roots and have a multiple reserve system, whereby multiple banks issue their own 'dram' notes, which are convertible into a precious commodity such as gold or a commodity bundle. This keeps the currency out of the hands of Scottish politicians, which may or may not be a good thing depending on one's perspective.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of