What you would do is have a Scottish Central bank who backs it at the same rate.
New central banks have been created before, and no doubt will be again.
( Dr Preference AjcuiVd289, Mon 15 Oct 2012, 15:21, 1 reply, 13 years ago)

You can't just create a Central Bank based on someone else's currency
and hope for it to be able to back up an economy. I mean, I'm sure you actually could do what you are suggesting, but what for? Scotland would lose its entire finance sector in a second becuase the currecy would be worthless.

And the Scottish Central Bank would still be unable to use the Bank of England as a last resort, so how is that backing a currency up at all?
( the mighty badger Aphrodite, on a bar stool, by your side, Mon 15 Oct 2012, 15:28, Reply)

The only hope for Scotland to retain a financial sector, regardless of currency, would be for it to undercut London on corporate taxes, or go the whole hog and create an IFSC style wild west.
The SCB would be able to act as a lender of last resort in the same way that all other Central Banks do, by issuing government bonds.
Again, and I stress, I'm not advocating this, just pointing out that HMG can't stop it.
( Dr Preference AjcuiVd289, Mon 15 Oct 2012, 15:33, Reply)

Isn't it the case that bonds issued by a SCB would be effectively worthless unless somehow backed by the bank of england?
I'm not at all sure that a country's credit rating can be based on someone else's currency, can it?
( the mighty badger Aphrodite, on a bar stool, by your side, Mon 15 Oct 2012, 15:35, Reply)

They'd only become worthless if the Scottish economy screwed up spectacularly and the country was frozen out of the markets.
The credit rating is based on the perception in the markets that the country, via its CB, will be able to repay its debts. In the short to medium term Scotland would be seen as a fairly safe bet. Though after that, fuck knows.
( Dr Preference AjcuiVd289, Mon 15 Oct 2012, 15:40, Reply)