Scotland's three banks will be banned from issuing their own notes if the UK joins the single currency, according to a European Central Bank committee.

The Frankfurt-based bank believes that notes issued by Scottish commercial banks are not legal tender and that their continued use would be illegal under European law.

This would mean the Royal Bank of Scotland, the Clydesdale Bank and the Bank of Scotland losing their rights to design and distribute notes, according to a report issued by the committee.

Members ruled that the laws which allow the Clydesdale, Royal and Bank of Scotland to issue their own notes should be abolished on monetary union to avoid possible confusion and competitive advantage.

Heritage 'damaged'

But the Scottish clearing banks say the move would damage Scotland's heritage.

They are lobbying the Bank of England, the Treasury and the Scottish Parliament to resist the change.

The ECB points to the treaty which established the European Community, saying it gives exclusive rights to authorise all note issues to the European Central Bank.

It further warns there is "no room for exclusively national arrangements" on joining the euro.

If the European bank gets its way Scots will have to use euro notes produced by the Bank of England, Britain's central bank.

Queen's head banned

European bank chiefs decided in 1998 that the Queen's head would not be allowed to appear on euro notes.

The surprise decision overturned the wishes of European Union governments to keep a space for national symbols on the notes as a way of retaining a link with the past.

Instead, all the notes will display the European flag, superimposed on designs of windows, doors and bridges symbolising cooperation and openness.

The ECB's recommendation that Scottish privileges must end on monetary union, along with those of Northern Ireland's four banks, has been lodged with the EU Council, the European Parliament, and the European Commission.

The three banks are said to be "seriously concerned" and are lobbying to continue issuing notes.