A country can’t have fiscal independence inside a single currency zone. However much the Scots want to have their cake and eat it (who doesn’t) the example of the euro zone demonstrates this rule with brutal clarity. The governor of the Bank of England is learning tact, and last week he needed to, as he gave the chippy Scots a few home truths about home rule.

As the complexities of unravelling the 300-year-old union become apparent, we seem to have belatedly noticed that our two biggest domestic banks are incorporated in Scotland, a country far too small to support them as a lender of last resort. The obvious answer is to re-incorporate in England. Then.Royal Bank of Scotland could finally bury the recent past by rebranding with a new name: National Westminster Bank, for example.

Unfortunately, it’s not so easy. You can’t just up sticks and re-settle in EC2. Essentially, the Scottish company must be wound up and the shareholders offered equivalent shares in the English entity. The motion to move requires a 75 per cent majority vote in favour, and the dissidents might demand their capital back, perhaps through the courts. With the best will in the world, it’s a complex, uncertain and expensive process.

Despite this potential cost and upheaval, few boards are actively rooting for togetherness. The Scots made a great fuss over Mr Carney, but it’s unlikely that the average Glaswegian voter will entirely grasp the subtleties of monetary union, and a campaign from assorted business fat-cats would probably be counter-productive. They must just secretly hope for a No vote in September.

A small insurance policy

Gervaise Williams is passionate about smaller companies. That’s just as well, since he has over 100 of them in the £250m Diverse Income Trust that he manages. He believes that in the long run small companies beat large ones, and has charts to demonstrate this. In the short run, though, investors can get carried away, so last December he bought himself a little insurance.

Diverse paid £4m for the right to sell the FTSE100 index at 5800 between now and June 2015. Thanks to the euphoria about prospects then, these put options were pretty cheap, and with the index around 6600, this one was way out of the money. Shares would have to fall rather more than a tenth for the bet to come off, and Mr Williams doesn’t really expect it to do so.

However,  it’s only a little over 12 months since the index was below 5800, so it’s hardly an absurd proposition. The cost of the protection money is 0.08% of the fund’s assets per month over the life of the option. That’s much cheaper than selling individual holdings in what are almost by definition illiquid stocks, and then trying to buy them back lower down.

It’s highly likely that Diverse will lose money on the option trade, but do you consider your house insurance was a waste of money because the place didn’t burn down?

Printing pesos doesn’t pay

Rule one of investing: never lend money to Argentina. When it comes to serial defaults, no other country comes close. It’s been defaulting almost since before the country was born in 1816, and there’s even a museum of foreign debt in Buenos Aires. An early dictator offered what he called the Malvinas to the British government (through Barings Bank) in return for debt forgiveness, but the offer was turned down on the grounds that the British reckoned they already owned the Falklands.

The latest currency collapse has come so quickly that the rubble from the previous default is still lying about, in the form of holders of defaulted bonds using the US courts to extract better terms. The peso still looks too high;  Steve Hanke from the nicely-named Troubled Currencies Project at Johns Hopkins university reckons the Argentinian inflation rate is not 25 per cent, but 63 per cent.

President Cristina Fernandez may be at the head of “an amateurish government at its wit’s end” but she must be puzzled at the failure of her policy of printing money to fund social spending; isn’t that what all the governments in the west are doing?

This is my FT column from Saturday

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