Since my dear friend Sam has been trying to sow confusion again then this is the process that applies when the new Scottish Pound is introduced. If we take an example bank such as Tesco Bank Plc, then it will need to split into Tesco Bank (Scotland) Plc and Tesco Bank (rUK) Plc.

The sterling accounts will stay in the rUK bank and the S£ will be in the Scotland bank. So at the starting point there is nothing in the Scotland part and all the sterling is in the rUK bank.

Customers request sterling to the value of £10m should be converted into S£ and credited to their new S£ accounts. Their sterling accounts are debited, and the bank pays £10m to the Scottish Reserve Bank.

The SRB transfers that £10m to its sterling correspondent bank account (which might be at the BoE). This means the rUK bank is debited £10m from its reserve account at the BoE.

The rUK bank sees its liabilities fall by £10 m (less customer deposits) and its assets fall by £10 m (less on deposit at the BoE). Therefore assets and liabilities reduce by exactly the same amount and there is no imbalance.

At the Scotland bank the SRB credits S£10 m to the reserve account at the SRB ‘for onward credit to customers xxx’. The Scotland bank credits the S£ accounts of the customers with the same amount of S£ as was debited from their sterling accounts.

At the Scotland bank it now has liabilities of S£10 m (the customer deposits) and assets of S£10 m (its deposit in the SRB reserve account. Again there is no imbalance.
The rUK bank will shrink its balance sheet by exactly the same amount as the Scottish bank increases.

This has been confirmed as correct by senior bankers.