Say country A sends some billions of dollars to country B in aid or in exchange for some resource. How does the actual transfer take place? How does the wealth of country A decrease and the wealth of country B increase?
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Usually it is not the country itself that pays, it is company of nation A that pays company nation B.
Payment is done using banks, in the same way as when you buy an house or a car.
I think I’m right in saying that at least to start with all that is actually involved is a change in the computerised records of a main international bank. One account has a number taken away and another account has a number added? No actual physical transfer takes place just numbers in accounts.
When someone wants to take out actual physical cash they would presumably do it at a bank in their country that held cash reserves and some computer transaction would take place again from the original account to that bank to replace the cash they had?
Of course in situations when people want to avoid banks or they don’t securely exist then people have been known to transfer a lot of suitcases of physical notes ( or gold or diamonds perhaps) by a physical transport system.
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Sometimes money don’t change hands at all. Say when the US is saying they’re offering 20 billion military aid to Ukraine they just pay US companies to send weapons or take weapons worth that from their stores and ship them there.
Though most countries are moving away from holding the stuff, nations can actually store bars of gold deep in underground vaults at the New York Fed. I presume they can shunt the bars from one nation’s compartment to another’s as a form of money transfer.
The NY Fed offers tours. I’ve never been, but I sure want to go!
Nations have state banks, such as the federal reserve in the United States. The transactions happen over a wire system, like fedwire or swift. In straightforward transaction like you are supposing, it’s just like any other international money transfer, only with larger amounts and between public banks controlled by the state.
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Sometimes, cold, hard cash is the only way if the nations are not normal trading partners. In 2016, pallets of currency were flown into Iran.
https://www.cnn.com/2016/08/03/politics/us-sends-plane-iran-400-million-cash/index.html
This is a fascinating subject.
It’s a *liiiitle* more complicated than just transferring the money from one bank account to another. Instead, central banks use a network of correspondent bank accounts in different countries called *nostro* or *vostro accounts* (which are also used by large corporations when settling international deals). The particulars of these arrangements get quite technical, but basically what it means is this:
If the central bank of one country wants to make a payment to the central bank of another country, they will use their correspondent accounts held in other foreign banks to act as middlemen.
By turning the payment into a series of transfers between all these different accounts involving third-party countries, both banks can deal in their own currency. Why does it have to be so complicated I hear you ask? To simplify things massively, this is mostly due to how complicated it is to deal with a foreign bank that’s isn’t doing any business in your own country.
The series of payments will be sent through via wire transfer; a secure messaging system made specifically for financial transactions, like SWIFT, Fedwire, CIPS. These don’t process the payment itself though, it’s just the protocol carrying the information. The payment itself is done through some kind of payment platform. In Europe for example, they use a system called TARGET2.
The entire process can sometimes take up to five days, sometimes even longer. This is a pretty opaque system, making it difficult for the institutions involved to really understand exactly how and when the payment will go through or even how much it will cost in the end.
To make things faster and easier, some banks and companies are working on new ways to make international payments. They are actually exploring the possiblity of using cryptocurrency – the Utility Settlement Coin, through a financial consortium called [Fnality](https://www.fnality.org/home). Pretty interesting stuff.
^(edit: grammar.)
I know it’s not a lot relatively speaking, but in the 90’s I was doing some work for the Bahamian government as an employee of the FAA. They gave me a check for $550,000 to take back to the states. I taped it to my chest I was so scared to lose it. So there’s that.
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