The first poll has been released showing a lead for the pro-independence campaign.

Could the unthinkable really happen?

Well the teenagers (16 year olds can vote) are hugely pro-separatist (responding well to a showing of Braveheart) and whilst Rangers fans still sing unionist songs on the terrace, the polls show Salmond has many of them voting away their British passports at the ballot box.

Perhaps it’s time to seriously look at what a break up of Britain really means for clients’ money ?

Capital Flight

Sadly, the debate has centred on whether Scotland can keep the pound; of course Scotland can use the pound, so can anyone. Of course, what nobody outside of Britain (or a new formal currency union) can do is use the BoE as lender of last resort and to set monetary policy.

According to UBS every monetary union broken last century had “major deposit shifts in the banking system”.

Even the sniff of an un-backed, new Scottish currency will trigger an unchecked capital flow out of Scotland as depositors rush to find a safe haven rather than take a 15-20% currency correction. This leaves the BoE with the impossible problem of a falling Scottish money supply and a rising one in the rUK.

Trouble is that a now desperate Scottish government would be negotiating with two different Westminster governments (pre and post rUK elections) with no guarantee that anything agreed with the first would be upheld by the second. Then you would have generally poor motivation from Westminster politicians anxious to gauge rUK voters’ opinion on the whole thing.

With Czechoslovakia it was supposed to be orderly negotiation and a union for 18 months. It turned out that the public fear of loss was quicker than the negotiations and the currency union lasted just 6 weeks as Slovakia’s deposits were drained.

Gilt Yields

Faced with a belligerent Westminster (anxious for rUK votes) the SNP says it will renege on Scotland’s share of national debt. This would increase the rUK national debt by over 9%.

Despite Scottish Financial Services firms shifting over the rUK side of the border increasing rUK GDP you would guess that the rUK credit rating would be affected with some worried feeling in the gilt markets.

Pound

With all the uncertainty and potential problems, Sterling will probably weaken sharply by at least 3-5% initially.

FTSE

Expect huge swings for the 100 listed Scottish firms who will struggle with a new and very weak currency, EU uncertainty, increase costs of trade with rUK customers and rising Scottish interest rates.

It’s likely the index will fall as a whole given the overall added complexities and uncertainties.

What should clients do?

Move money out of Scottish deposits before the rush and sell firms with significant Scottish exposure (BAE, Standard Life etc…). Oh and get foreign currency now rather than later, if they need it.

If you’re confident Britain will survive then you could look at the opposite.