ELI5- How do countries and large institutions pay each other?

175 views

[ad_1]

For example when a country pays its dues to the UN or IMF or when a company buys over another company for a large sum. Do they just simply ‘wire’ the funds or bank transfer?

In: Economics
[ad_2]

Yes, they use checks and wires. There are limits to how much money can be sent via check, for example the IRS limits checks to $100 million or something like that, so for larger transactions they use just wires or other bank transfers.

Welcome to the SWIFT system. They basically wire money from institution to institution. No one uses paper chèques since they are only a hard copy version of the actual digital transaction.

In Norman Schwarzkopf’s book he mentions getting a $750M check from Saudi Arabia for the costs associated with moving/supplying US Forces during Desert Storm. He put the check on a military jet to get it to NY so they could deposit it before the weekend started and get interest on it.

Typically financial organisations use CHAPS, BACS or Swift in the UK.
The Bank of England also uses £1 million and £100 million notes (giants and titans) when dealing with the Scottish/Irish banks who are allowed to print their own currency.

Hey there, as you might learn from.some.of my other comments I work in a road network management organisation which, in my (European) country is a government agency.

We get money from the government every year for our works. We actually don’t get money on a bank account there is a centralised budgeting it system that tell us how much we have on each or our budget lines. Think your banking app but on steroids.

We also process payment to our contractors it. The biggest I ordered was 12.5 M€. It’s a bit more complicated than a wire transfer : we certify that the work has been carried, that the quantities of, say, pavement delivered is the same as the quantities billed. Then we set the amount “to be paid”, the budgeting do their check on their part (and often ask us questions by rejecting the payment with a demand for more infos), and the contractor is paid by wire transfer on the account they gave us during the procurement phase.

We have a border on our roads and have to arrange with the other countries (2 of them) for money transfer in case of shared work. For those purposes we have a bank account. Not like you tho. This one is hosted (?) By the central bank of our country. And we do wire transfer with our counterparts. Again, I don’t log on a bank page or whatever. We ask the central bank people to do it for us on a special government it system, they do their checks and wire the money to the bank account number we got from the target organisation. We get money the same way too ! That’s not very common. Did that like 6times in the past 3 years.

The checks I talk about are administrative ones : agreement have to be signed. The people who signed must have authority to sign that sort of paper and for such an amount (for example I can engage money up to x€ and authorize payment up to Y€, ofc not gonna give actual numbers).

We use the same system to transfer money to our landlords : some of our building are owned by corporation and we have to pay them. Given their is a contract and it’s not international their is a bit less checks and people involved.

We receive grant for the European union. Those can be of two sorts : our country get it and it’s just added to our budget in the central budgeting it system. Or we get it directly (generally after we provided proof of spending and goal accomplishment) then it’s wired on our bank account at the central bank. The biggest I saw was 35M€. Seeing a bank statements which such amounts is weird at first but you get used to it surprisingly quickly when working with that kind of number every days…

(the money on our bank account is taken from or added to our budgeting lines in the “budget app”. Where the actual money comes from when we paid contractor after getting those grants, that I don’t know….)

For any of the countries that keep gold in the Federal Reserve vault, they just dolly the gold a couple dozen feet to the recipient country’s compartment.

**Please read this entire message**

Your submission has been removed for the following reason(s):

Straightforward or factual queries are not allowed on ELI5. ELI5 is meant for simplifying complex concepts.

If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this submission was removed erroneously**, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20https://www.reddit.com/r/explainlikeimfive/comments/o8xltz/eli5_how_do_countries_and_large_institutions_pay/Please%20answer%20the%20following%203%20questions:1.%20The%20concept%20I%20want%20explained:2.%20Link%20to%20the%20search%20you%20did%20to%20look%20for%20past%20posts%20on%20the%20ELI5%20subreddit:3.%20How%20is%20this%20post%20unique🙂 and we will review your submission.