Scottish independence referendum: Treasury threat to future of Scottish bank notes THE referendum debate has taken an unexpected turn after Chancellor George Osborne sparked a row over the future of Scottish bank notes - raising the prospect of them being banned if Scots vote to leave the United Kingdom. The Tory Chancellor and strategist, who has been co-ordinating the coalition government's referendum policy, launched his first foray in the debate with a warning over an independent Scotland's continued use of the pound. That sparked new accusations from the Scottish Government that the coalition government was trying to "talk down to Scotland" and "dictate" to it from Westminster. A spokesman for finance secretary John Swinney said the threat to ban Scottish bank notes after independence was "churlish." As politicians on both sides of the Border focused on the detail of the debate, Mr Osborne refused to confirm whether an independent Scotland would be allowed to continue to use the pound officially as its currency. In subsequent briefings, the Treasury confirmed that, while it could not block Scotland from using the currency, it could be reduced to a situation where it had no say in fiscal policy, was prevented from printing its own money and was locked out of any valuation decisions. Treasury officials confirmed this would mean Scottish banks, which are licensed by the Bank of England to print their own notes, would be barred from doing so in the event of independence. Royal Bank of Scotland, Clydesdale Bank and Lloyds-owned Bank of Scotland are able to print bank notes with the faces of famous Scots, in a long tradition that has been symbolic of Scottish identity. Yesterday, First Minister Alex Salmond told his unionist opponents he wanted to reach a consensus on the staging of a referendum on independence, which he has said will be held in autumn 2014. He told MSPs during question time at Holyrood that he had "every interest in making sure we have a consensus on the process" of a referendum. As negotiations get under way between the Scottish and UK governments on a temporary handover of powers to Holyrood to hold a legal referendum, Mr Osborne, who chairs the Cabinet sub-committee on Scotland, called on the Scottish Government to give details on how an independent Scotland would function. He said: "All these issues are going to be fleshed out now and flushed out. The SNP is going to have to explain what its plans are for the currency of Scotland, what its plans are for the defence of Scotland when it doesn't have the protection of the UK, what its plans are for the Scottish economy when it's not part of a larger economy and able to benefit from UK companies like AstraZeneca. He added: "These are things the SNP has to explain to the Scottish people. They've been hiding behind the process and hiding behind the procedural arguments, and this is the week when we move beyond those procedural arguments. We've settled what we think needs to be done, and they've got to explain to the Scottish people how they could possibly be better off outside the UK. SNP policy is to keep sterling and, when the time is judged right to join the euro, hold another referendum on whether to adopt the single currency. Mr Salmond has previously said he would prefer an independent Scotland to adopt the euro. Mr Osborne said: "Joining the euro, that is not the currency I'd be wanting to join at a time like this." The currency issue was first raised last month by Lib Dem Chief Treasury Secretary Danny Alexander in a keynote speech where he launched a Treasury review of what might happen. At the time it was acknowledged an independent Scotland could use the pound if it wished, but could be in a situation similar to Kosovo's use of the euro, where it has no say over fiscal policy, control of valuation or ability to print money. Mr Alexander said this would give Scotland less control than it enjoys now. Following Mr Osborne's comments, Treasury sources confirmed Scotland would not necessarily be allowed into a currency union with the UK. This would mean its banks would also lose the ability to print notes. The Chancellor also raised doubts about Scottish prosperity as a separate nation and warned the country's economy could have collapsed in the banking crisis of 2008 had it already been independent at that time. He said: "I think the people of Scotland would lose out in terms of the Scottish economy. I don't think Scotland would be as prosperous as it would be as part of the UK. I think there are businesses that are nervous about investing in Scotland when they don't know about its constitutional future. He went on: "I think if you look at the scale of the national debt, for example, that Scotland would have to take if it became independent; if you look at the fact it has an important banking industry as we know and you ask yourself: "Would Scotland alone have been able to bail out the Royal Bank of Scotland or Halifax Bank of Scotland"? You ask these questions and you begin to see actually Scotland is better off in terms of jobs and prosperity being part of the UK and, by the way, the rest of the UK is better off with Scotland as well. A spokesman for Mr Swinney said that the coalition was being "churlish" and insisted the ability to print Scottish notes and remain in a currency union would be part of the independence negotiations. He added: "The more a Tory Chancellor tries to lay down the law to Scotland, the stronger support for independence will become. George Osborne said nothing at all, and the currency position is crystal clear - an independent Scotland will retain sterling, and there is absolutely no provision requiring Scotland to join the euro. The issue of the euro would be decided by a referendum of the people of Scotland, and only when the economic circumstances were right - until such a point, an independent Scotland will retain sterling as at present. He also insisted Mr Osborne was wrong about an independent Scotland's prosperity, claiming it would be a richer country. He said: "When all of Scotland's resources are included in our nation's economic output, an independent Scotland would be ranked sixth in the world league table of OECD nations in terms of gross domestic product per head - ten places ahead of the UK at 16." The row comes as further focus is put on Mr Osborne's austerity measures, amid fears the UK is about to go back into recession. He said: "I have made it clear that these very are difficult economic times. Certainly, if the rest of Europe goes into a deep recession, that will be a real challenge for us here in Britain. Yes, of course, there are disappointing things happening when you see unemployment going up, but we are doing everything we can to make sure that in Britain we are protected from these global storms.