The Scottish nationalists have only one real path through the currency conundrum but I suspect it one that they'd have a great deal of problems selling to the Scottish public when they realise what it entails. 1/n

Immediately post-independence there is only really one viable currency approach - sterlingisation. Its not without problems but you can rule the other two options out as starting points. 2/n

Scotland wont be able to simply march into the Euro post-independence and the creation of a new currency woudl be a matter of securing reserves, establishing a central bank and central bank processes/gvernance etc. optimistically a two to three year project. 3/n

Sterlingisation, the initial arrangement therefore that Scotland would be forced to adopt would be an inherently costly and painful arrangement with the country outside the LOLR system ad dependent on securing sterling to pay its way. 4/n

More realistically it's likely to take towards five years to get anywhere near the reserves to be able to support a new currency. At least during that time technically mortage holders wont be subject to currency conversion issues. 5/n

The problems in securing sufficient sterling will be significant during this period and it would be likely Scottish budgets would be under sever pressure. 6/n

These tensions will see Scotland having to adopt its own currency as a next step, as it will still not be possible to step into the Euro because entry requirements will in any case not be met at this point. 7/n

Defending a new currency and demonstrating budgetary, market and central banking responsibility will require continued attention to the balance of tax take and spending. Serious budget pressures will continue. 8/n

Having its own currency and no longer operating under Sterlingisation Scottish - rUK trade - the largest single destination of trade - would be subject to FX transaction costs - as woudl Scottish - EU trade. 9/n

These various pressures will lead to a likely move to try to join the Euro. I strongly suspect that would happen - likely 7 to 10 yrs down the line. This would by then be the third currency change scots and their businesses would have been through in less than a decade. 10/n

What size our financial sector would be by then would be anyone's guess if that guess was somewhere well and truly stripped down from where it is now. Corporate HQs will have upped sticks and moved to more stable monetary climes. 11/n

Through this set of three currency moves mortage holders and others will be trying to find their way through the path of either full re-contracting to the new currency or funding payment conversion as a new currency is brought in. There will be lost of unhappy bunnies. 12/n

During the Sterlingisation period, and through the first 5 years or so of the new currency, government budgets will be extremely pressed. There will be a choice to try to discourage higher tax payer flight with moderate tax demands or "hammer them" risking serious tax flight 13/n

Scotalnd will of course during this time have to bring down its deficit and manage its debt trajectory. Both debt and the deficit will require attention but of the two its the deficit that will be the most pressing. Tax alone aint going to get that job done. 14/n

Thats of course when rubber hits the road. The deficit will need to be attacked from yr 1 during the sterlingisation phase. But Scotland will be reliant on earning its pounds rather than managing a sovereign currency so budgets will be tight. THERE WILL BE CUTS. 15/n

Creating reserves and preparing for a new currency will require budgetary discipline of the new currency is to be stable and operate around par. The Scottish government would be between a rock and a hard place at that point and cuts will be inevitable. Very sizeable ones. 16/n